Donald Trump started his second presidency with two Elon Musk-type staunch supporters. The first, the real Musk, received endless publicity and then he fell out with President Trump.
But the second “Musk”- Commerce Secretary Howard Lutnick – is becoming more powerful as each day goes by and that power may not be used to help Australia.
Whereas the real Musk achieved entry to Trump’s billionaire camp via cars and space, Lutnick achieved billionaire status via the bond market. He also lost a brother in the 9/11 terror attacks.
Lutnick has pulled off what is arguably the biggest visible achievement of the “Make America Great Again” campaign. He will look to repeat the model, and other countries will be watching closely.
Lutnick is a strong advocate for the Trump policy of using tariffs and low energy costs to entice major investment in US industry, and believes steel is the backbone of a modern economy and military.
In the Biden years, Japanese based Nippon Steel had been trying to acquire the struggling giant US Steel company but was blocked by the Biden administration over national security concerns.
President Trump had been expected to follow Biden and also block the $US14.9bn ($A22.90bn) Nippon bid, especially as the steel unions who were big Trump supporters and opposed Japanese control. But Lutnick found a way to harness the Japanese investment power.
The Japanese agreed to invest in modernising US Steel plants and to expand production which enable Lutnick to achieve his aim of revitalising American steel production, so reducing dependence on Chinese imports.
But that was not enough. To be allowed to take over the American steelmaker, Nippon Steel had to agree to grant the White House a “golden share” that gives the government an extraordinary influence over the US company.
President Trump and his successors will have a permanent stake in US Steel, giving the American government significant sway over the company’s board and a veto power over a wide array of company actions.
Under the terms of a national security pact, the US government would retain a single share of preferred stock, called class G – as in gold.
And US Steel’s charter will list activities the company cannot undertake without the approval of the President or someone he designates in his stead.
For example, Nippon must gain the President’s permission to transfer production or jobs outside the US; closing or idling plants before agreed-upon time frames; making certain changes to how it sources its raw materials plus other powers.
Effectively, US Steel, although owned by Nippon, becomes a quasi government body – an arrangement that if duplicated elsewhere could change the nature of strategic foreign investment in the US.
Australia is unlikely to follow the Lutnick model in the Santos takeover approval decision, but it will certainly look at it.
Australia, via BlueScope Steel, is a significant producer of steel in the US via electric arc furnaces that use scrap steel as a raw material. BlueScope also has a steel building component operation and will be a major beneficiary from US steel protectionism.
However, it supplements its US steel production with imports from Port Kembla in Australia. The Trump administration has imposed big tariffs on those imports, and Australia is seeking relief.
Given the nature of the Nippon Steel-US Steel deal, it will be difficult for either Lutnick or President Trump to lower the tariffs.
They may ask BlueScope to expand into its US production or buy steel from other American steelmakers.
However, one of the ideas Lutnick has been discussing with President Trump is the possibility of devoting income from specific tariff levies to assisting companies finance US expansion to replace their imports.
If BlueScope can’t get tariff relief, it should explore that possibility.
Meanwhile, the deal will send a shiver through Australian iron ore producers because China will sell less steel to the US and require less iron ore. On the other hand, the Japanese have been much less active in exporting steel to the US, so it is not a major part of the Japanese industry. This makes it attractive to develop a major US steel manufacturing presence to replace Chinese imports.
The US government has historically taken stakes in companies only when they were under financial duress or played a significant role in the economy. During the 2008-9 financial crisis, it acquired a large stake in General Motors as part of a bailout and took control of the mortgage giants Fannie Mae and Freddie Mac.
The US Treasury sold the last of its stake in General Motors in 2013. President Trump has canvassed releasing Fannie Mae and Freddie Mac from government control.
Australia’s Whyalla building products steel plant is in financial trouble and the Australian government will need to consider a bailout along the lines of the US actions in 2008.
But the plant needs substantial investment. Currently, there is a glut of steel, but that will change overtime If Whyalla closes, the Australian building industry will be totally dependent on imports.
The message from the second “Musk” – Lutnick – would be that a vibrant steel industry is vital for any nation.
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