The Long, Strange History of U.S. Steel

Iconic U.S. Steel, whose roots date back to Andrew Carnegie and J.P. Morgan, is on track to be bought by Japan’s Nippon Steel.

In this modern era of AI hype, mind-blowing tech company valuations including unicorns hitting billion-dollar market caps before an IPO, it’s hard to believe that not so long ago the largest company in the world was a steelmaker. In the halcyon days of the American railroad industry in the early 1900s when railroad companies were the original stonks meme, steel was a currency as valuable as gold, and anyone controlling its production could amass a tremendous fortune. One steel producer rose above them all to become the first company in the world to reach a market capitalization of over $1 billion.

That steel company, United States Steel Corporation, most commonly referred to as U.S. Steel, would become one of the most iconic companies in the business world and was to define the city of Pittsburgh. The city’s professional football team’s helmets still bear the company’s logo. Over the decades, U.S. Steel remained a proud American company, enduring the downturns in the steel industry and foreign competition, especially from China. Despite losing its foothold as the largest producer of steel in the United States, the name U.S. Steel evokes memories of American dominance and good, well-paying blue-collar jobs.

Despite its status as an iconic American corporation, U.S. Steel struggled to maintain its dominant position in the market, slipping below other domestic competitors while failing to innovate. The slow decline of the company ultimately led to it pursuing a sale of itself to a competitor. Cleveland Cliffs, a domestic competitor nearly made the winning bid, but ultimately, U.S. Steel accepted an offer of $55 per share from Japanese conglomerate Nippon Steel. The offer valued the company at $14.1 billion, a fraction of its peak valuation when adjusting historical currency values for inflation. At its nadir, U.S Steel’s market cap had dipped below its 1901 market cap.

The long, winding path that U.S. Steel took from being world’s most valuable corporation to auctioning itself off is an interesting case study in business practices, innovation or lack thereof, in engineering and manufacturing, and in economic policy, both domestic and abroad.

The Beginning: Titans of Industry

U.S. Steel can trace its roots back to a handful of the most iconic titans of American industry. The company that we now know as U.S. Steel came to be in 1901 when J.P. Morgan financed the merger of Andrew Carnegie’s Carnegie Steel Company with Federal Steel Company, National Steel Company and six other steelmakers for $492 million. Charles M. Schwab served as the first president of the merged entity.

Morgan and Schwab brought U.S. Steel into the world at the height of the consolidation of power into the hands of a few American businessmen. The company expanded its footprint again in 1907 by purchasing its largest competitor, Tennessee Coal, Iron and Railroad Company. This caught the attention of the federal government, which was keen to break up the massive corporations that were beginning to exert excessive control on the American economy. Standard Oil was broken up in 1911, but U.S. Steel was able to escape antitrust laws and continue its expansion throughout the country.

The timing of the consolidation of power in steelmaking in the United States could not have come at a better time for the financiers rolling up plants into U.S. Steel. In its heyday, the company was producing over two-thirds of the steel in the United States. The company, referred to as The Corporation on Wall Street, grew its revenue through mergers and acquisitions rather than innovation. Former president of U.S. Steel Charles Schwab would eventually move to Bethlehem Steel, which was known for its innovative practices. U.S. Steel was more concerned with avoiding antitrust regulations than managing the heavy debt load required to roll up the competition into a single entity. By 1911, less than 10 years after its share of U.S. steel fabrication peaked above 67 percent, U.S. Steel’s share had dropped to less than 50 percent.

20th Century: Building American Icons and a Slow Decline

Despite no longer being the most valuable company in the world, U.S. Steel still had its hands in many of the most iconic structures built in the country during the 20th Century. Just to name a few, the company supplied and erected the steel for the San Francisco-Oakland Bay Bridge, the Willis and Hancock Towers in Chicago, the New River Gorge Bridge in West Virginia, the Chesapeake Bay Bridge in Maryland and the New Orleans Superdome.

The Great Depression helped usher in a new era for U.S. Steel, with steel production bottoming out in 1933. The company used the difficult period to modernize plants, shut down redundant facilities and begin entering the consumer goods market by starting to produce more steel for cars and home appliances. World War II’s need for steel drove U.S. Steel sales back to and beyond their previous heights. The company employed over 340,000 people in 1943 and was the 16th-ranked U.S. corporation in terms of military contracts during the war.

For U.S. Steel, the post-war period was defined by political battles with multiple presidents. In 1952, President Harry S. Truman sought to intervene in a labor dispute by taking control of the company’s steel mills and resolve a dispute with union workers but was ultimately turned away by the U.S. Supreme Court. U.S. Steel got into another battle with President John F. Kennedy when it refused to join the administration’s efforts to have local businesses pressure Alabama Governor George Wallace to desegregate the University of Alabama.

Despite its political tussles with presidents, U.S. Steel continued to hold its position of prominence domestically. Although it would never again approach its peak market cap and position as the most valuable corporation in the world, U.S. Steel managed to reach the middle of the 20th Century as an established, steady steel producer.                                    

The Corporate Raiders Era

Depending on your political affiliations, the 1980s were either the decade that transformed America for the better or the decade that set up the country with a capitalist hellscape where corporations have more power than workers. U.S. Steel certainly leaned into the Reagan administration’s hands-off approach to corporate governance. The tax breaks the company received did not go toward plant modernization and innovation but were instead directed toward U.S. Steel’s diversification and restructuring maneuvers, including the purchase of Marathon Oil for $6.1 billion—with $1.4 billion in cash and $4.7 billion in loans. The merger was made possible thanks to $500 million in tax savings.

Suffice to say, this move was not well-received in Congress, which had just been lobbied for tax breaks so there would be increased investment in domestic steel production.

“We go out on a limb in Congress and we feel they should be putting it in steel,“ complained Arlen Specter, a Republican Senator from Pennsylvania.

U.S. Steel, rebranded as USX Corporation in 1986 as their diversification continued, had legitimate reasons to expand its business into other industries. The majority of global steel production had shifted to China by this time and outdated U.S. plants were becoming less profitable to operate. Decades of underinvestment in plant technology had left USX with lower profit margins in many of its U.S. plants.

USX steelworkers walked off the job in August 1986 when the terms to a new contract could not be reached. The company’s plants remained shut down until February 1987, but four plants would remain permanently closed and 3,500 jobs lost. During the prolonged work stoppage, famed corporate raider Carl Ichan launched a hostile takeover bid for the company but ultimately withdrew his offer when a labor deal was reached.

For many industries, the 1980s, which were ruled by deregulation and mergers, are a line in the sand where American jobs were traded for cheap overseas goods. Steel was one, with U.S. Steel expanding into the oil and gas industry and shuttering plants at home. Wall Street-minded executives and their armies of accountants gutted many once-proud companies in their pursuit of the almighty dollar.

The end of American steel?

American steel production had spent the better part of 50 years in a slow decline as the 21st Century approached. The trend was thrown into overdrive at the turn of the century thanks to a glut of cheap imported steel from China and India. The Great Financial Crisis didn’t help matters either. The economic downturn combined with the continued offshoring of steel production resulted in a wave of bankruptcies among U.S. steel producers.

Diversification, having gone about as well as could have been predicted, ended in 2001 when USX split back into U.S. Steel and Marathon Oil. Adjusted for inflation, the final sale price of the steel assets, $14.1 billion, comes to nearly $3 billion less than what the company paid to merge with Marathon in the 1980s. That era of American steelmaking, but more specifically, corporate governance, cannot be viewed as anything but a failure. Rather than steel themselves for foreign competition, American companies yielded to Wall Street and sold themselves up a river without a paddle.

The global economy weathered the economic downturn of the Great Financial Crisis, but the damage was done to steel manufacturing in America. Despite the industry’s status as a talking point for politicians, little could be done to make it competitive with cheap foreign steel. Over half of the world’s steel is now produced in China. The United States ranks fourth behind India and Japan in steel production, producing only 14.5 million tons per year, less than half of what U.S. Steel alone produced at the height of its powers.

A Pandemic Lifeline, Merger and What Comes Next for U.S. Steel

On March 20, 2020, the panic on Wall Street over the impending COVID-19 economic shutdowns reached its maximum levels. At the final bell that fateful day, U.S. Steel’s stock closed at a price of $5.17, implying a market cap of under $1.2 billion. The panic over the potential fallout from the COVID-19 lockdowns was overdone, but things still did not look great for U.S. Steel.

Believe it or not, the global pandemic (well, actually the trillions of dollars of economic stimulus injected by central bankers) actually provided massive bullish tailwinds to steelmakers. U.S. Steel saw a years-long trend of flat-to-declining revenue reverse with big gains. Steel prices quadrupled to over $2,000 per metric ton thanks to rising demand and supply chain nightmares. U.S. Steel, which was on life support, had legs again. Its stock rose over 600 percent from the March 2020 lows—before merger rumors were in full force.

Efforts to sell U.S. Steel to the highest bidder began in earnest in June 2023. Domestic competitor Cleveland Cliffs put up a strong fight to outbid Nippon, but ultimately yielded. A tie-up between Cleveland Cliffs and U.S. Steel likely would have faced aggressive pushback by regulators over potential antitrust concerns.

The deal with Nippon is not without its detractors, as several prominent U.S. politicians have expressed concern about a domestic company in a strategically important industry being purchased by a foreign player.

Pennsylvania Senator John Fetterman, who resides outside Pittsburgh in an old steel town, was one of the loudest detractors of the merger.

In a statement, Fetterman said, “I live across the street from U.S. Steel’s Edgar Thompson plant in Braddock. It’s absolutely outrageous that U.S. Steel has agreed to sell themselves to a foreign company. Steel is always about security—both our national security and the economic security of our steel communities. I am committed to doing anything I can do, using my platform and my position, to block this foreign sale.”

Despite the political blowback, there is little reason to believe the merger will not go through as intended. Japan is viewed as an ally of the United States and U.S. Steel is not a significant player in defense contracts. Additionally, Nippon Steel already has a presence in the United States.

With a reputation for producing quality steel, Nippon is an ideal partner to elevate U.S. Steel. The combined company will become the third-largest steel company in the world. U.S. Steel’s plants will contribute to Nippon’s bottom line thanks to its operations in the automobile industry. Nippon has confirmed it will honor all existing union contracts for the United Steelworkers International.