Cummins American doesn’t make steel or cars. They make coin and currency counting machines. If you have ever seen a bank whipping through currency on a rolodex-like machine, counting cash, it’s probably a Cummins American patented machine. There were six U.S. manufacturers of coin and currency handling machines providing 95% of local market requirements when Jones started his career in 1979.
But by the year 2000, all the other U.S. manufacturers were driven out of business by dumping from Japan and European manufacturers. Cummins American survived because Cummins American held a portfolio of comprehensive patents which prohibited the Japanese and Europeans from copying Cummins products and dumping the copies of Cummins inventions in the US market.
Cummins American, a privately held family business founded in 1887, sold the coin and currency equipment business to an American company in December, 2019. With the sale in 2019, Jones is now retired from the firm.
As an example of how Japanese dumping into the U.S. market eviscerated the coin and currency industry, Japanese companies muscled in on one Texas innovator years ago. A company called Universal made a coin wrapping machine which sold for around $20,000 here. The Japanese copied it, sold it in their domestic Japanese market at $25,000 to make money, and then sold the same product in the U.S. at cost, for around $12,500. Once Universal went insolvent, Japan took over the U.S. market and upped its price for coin wrappers in the U.S. market to $25,000.
“That’s called free trade,” Jones said. “If I’m a Japanese business and those are the rules the U.S. has set, then why would I not do this? They’re not the bad guys. The bad guys are the PhD economists working for the Federal Reserve, Commerce or advising the White House who advocate for free trade like that. They have ruined numerous U.S. industries, not the Japanese or anyone else. Has any of this free trade theory been practical in the real world? We have to readjust our thinking.”
U.S. Steel has been reducing capacity at all of its domestic plants, according to its annual financial report. It still has a plant in depressed Gary, Indiana. Wait until Nippon gets a load of that city, which has become destitute with the exit of heavy industry over the years. As the steel industry left Gary as well as the South side of Chicago during the 1970’s and 1980’s the “new jobs” theoretically promised by free trade never arrived. These hallowed out neighborhoods are rife with crime and poverty today. If U.S. Steel ever closes in Gary, imagine the carnage revisited there should that day come again.
For Jones, the running theme is: if only Washington thought more like Tokyo.
“Warren Buffet is now investing in the big trading companies based in Japan that broker commodities and goods exports from Japan to the rest of the world. I guarantee you that when Warren Buffet started buying into these Japanese icons, the Japanese let him know that he was not going to get any controlling interest,” Jones said. “I assure you Ford cannot buy Honda and even when Renault bought a stake in Nissan, they were not allowed a controlling stake.”
The U.S. Steel deal with Japan shows how U.S. global trade thinking exists on another plane of economic reality. It is a one-world kumbaya view of markets that, with the exception of maybe the U.K., which has no manufacturing base to speak of, treats the planet like the nation state, and the nation state like some city or town, where one can easily shift production from California to Idaho, or the U.S. to Mexico. No different. China does not think like this. Germany doesn’t think like this. Japan sure doesn’t. It’s why Microsoft’s X Box gaming console is in last place in Japan, while Nintendo and PlayStation blow it away.
“Let’s say you have three football teams – one is Japan, one is Germany and the third team is the U.S. team coached by Mr. Free Trade. Tom Brady is his quarterback. Coach Free Trade believes his team should never kick field goals, only use the running game, and before we tackle someone, we have to ask them if it’s okay,” Jones said. “When the U.S. team consistently loses games, Mr. Free Trade tells his players ‘you have to learn how to compete, you are not efficient, you have to work harder.’ Look, I don’t care how good Tom Brady is, he is not going to win a game playing under those constraints.”
Nippon Steel’s US Steel Corporation Offer Should Be Killed, CPA Board Member Bill Jones Believes. Here’s Why.
The world’s fourth largest steel producer – Nippon Steel of Japan – made an offer to buy the third largest steelmaker in the U.S., U.S. Steel Corporation, in an all cash purchase priced at $55 a share in December, nearly double the company’s share price from early August. Will it go through? CPA Board Member and retired CEO of Cummins American, William J. Jones, thinks the government should kill this deal.
In playing devil’s advocate for a moment, imagine the CEO of U.S. Steel, going to shareholders and saying I just had a 40% increase over our share price offered to us by this Japanese steel company. His job is to maximize shareholder value. Mission accomplished.
“If I am in the government and my job is to approve that acquisition I would tell him sorry, CFIUS (The Committee on Foreign Investment in the United State) has reviewed your deal and said it is not in our national security interests,” Jones said. “You can’t sell it.”
Some in Washington agree, suggesting the deal is not done yet.
The National Economic Advisor to the President, Lael Brainard, said domestically owned steel mills were “essential to national security” and that the Nippon offer to buy one of two large, blast furnace mill companies here warranted “serious scrutiny.”
More than 50 members of Congress sent a letter to Biden on Jan. 3 about the acquisition. However, their letter suggests that they can be easily persuaded by promises from Nippon that no union workers will be laid off if the deal goes through.
“Of course Nippon Steel is going to promise not a single layoff. They all say that to get the deal done,” says Jones. “If the likes of Wall Street Investment bankers and their short term thinking is driving the discussion in Washington D.C. and not the long term strategic thinking of U.S. manufacturers, U.S. engineers, and national security proponents who are focused on the importance of a strong and sustainable interconnected U.S. industrial base, then U.S. Steel gets sold.”
If this deal passes, the U.S. corporate presence will further shrink on the list of the world’s top steel producers. The top five for sure will all be Asian owned.
As a result, there is the risk of U.S. steel production capacity eventually falling in favor of imports. This has happened in other industries over the last 20 years such as consumer electronics, textiles, commercial shipbuilding, cell phones, semiconductors, laptop computers, mainframe computers, machine tool and die manufacturing, among other industrial sectors within the manufacturing universe. What critical industry will go next, Jones wondered out loud: will John Deere one day be sold to CNH Netherlands? Will Wall Street advocate selling Caterpillar to Komatsu of Japan? Shall Northrup Gruman be sold to AirBus of France? “Without a well developed U.S. based industrial footprint across all major industries how will the U.S. manufacture products for our national security requirements? This cannot be achieved without what FDR famously called a U.S. based ‘arsenal of democracy,’” Jones said.
In an ideal world, Jones said U.S. Steel’s management should also consider the local government where their company is based as well as the economic and national security interests of the country.
Nippon Steel currently has a total production capacity of 66 million tons at its mills worldwide, most of which are in Japan. The company currently produces around 44 million tons a year. That means Nippon’s full capacity is an extra 22 million tons over the 44 it produces now. U.S. Steel is producing about 25 million tons a year here. “I think we can eventually expect Nippon Steel to rationalize excess capacity post closing of the sale by shutting some or all of the U.S. based steel mills acquired from U.S. Steel. Nippon Steel will shift that production to Japan thus soaking up the excess capacity available in the Japanese based mills. This will significantly increase the productivity, profitability, and the long term value of Nippon steel while at the same time eliminating a U.S. competitor. Domestic steel fabrication capacity will be significantly reduced. That is the end game here,” Jones said, adding that he suspects Nippon Steel will probably start by taking away U.S. Steel’s export market and giving it to Japan if the numbers add up.
“That is where the layoffs in the U.S. mills will start. Nippon Steel will promise that they will make steel in the USA and they might do that for five to ten years, then one day they won’t,” Jones is predicting.
For Nippon, their stated goal is to unseat the Chinese juggernaut sitting on top the global steel heap, led by Baosteel. The acquisition would bring them closer to their goal of 100 million metric tons of raw steel making capacity, and gives them five million tons of raw steel capacity at U.S. Steel’s Slovakia steel mill.
The Japanese Way to Growth
Bill Jones remembers his childhood vividly. In a call, he harkens back to his Boy Scout days. This time at a Boy Scout World Jamboree not far from Mount Fuji, Japan, in 1971.
“One thing that stood out to me then, and I was just 14 but curious, was all the cars on the road in Japan were Hondas, Nissan, and Toyotas. There were no American or European cars in Japan. The Japanese car market was basically closed to any imports. During my Jamboree visit in 1971, I saw a Mustang, Pontiac Bonneville, and a Camaro on display in a Tokyo showroom. The prices in Tokyo Japan for these American cars were double the price of what we paid here at the time. This was due to tariffs and regulatory fees assessed on imported cars. At those mark ups, there is no way an American car maker could take away market share from those guys.”
Later, as an adult at his family business at Cummins American, where he spent many days traveling through Tokyo for work in various Asian markets, he would come to realize that Japan protected its iconic national brands.
Since the end of World War II, Japan has circled the wagons around its biggest corporate brands. They keep moving up the food chain. So while Panasonic killed RCA, Zenith and the entire U.S. consumer electronics industry through dumping, that company is fine letting Samsung and LG take over the American television market. Panasonic is busy with other things, like making EV batteries, as one example.
This protectionism and mercantilism, something any card carrying member of the free trade club would find abhorrent, is what enabled the Japanese to build up their home market in favor of local brands.
Not even Tom Brady could win with these rules.
Cummins American doesn’t make steel or cars. They make coin and currency counting machines. If you have ever seen a bank whipping through currency on a rolodex-like machine, counting cash, it’s probably a Cummins American patented machine. There were six U.S. manufacturers of coin and currency handling machines providing 95% of local market requirements when Jones started his career in 1979.
But by the year 2000, all the other U.S. manufacturers were driven out of business by dumping from Japan and European manufacturers. Cummins American survived because Cummins American held a portfolio of comprehensive patents which prohibited the Japanese and Europeans from copying Cummins products and dumping the copies of Cummins inventions in the US market.
Cummins American, a privately held family business founded in 1887, sold the coin and currency equipment business to an American company in December, 2019. With the sale in 2019, Jones is now retired from the firm.
As an example of how Japanese dumping into the U.S. market eviscerated the coin and currency industry, Japanese companies muscled in on one Texas innovator years ago. A company called Universal made a coin wrapping machine which sold for around $20,000 here. The Japanese copied it, sold it in their domestic Japanese market at $25,000 to make money, and then sold the same product in the U.S. at cost, for around $12,500. Once Universal went insolvent, Japan took over the U.S. market and upped its price for coin wrappers in the U.S. market to $25,000.
“That’s called free trade,” Jones said. “If I’m a Japanese business and those are the rules the U.S. has set, then why would I not do this? They’re not the bad guys. The bad guys are the PhD economists working for the Federal Reserve, Commerce or advising the White House who advocate for free trade like that. They have ruined numerous U.S. industries, not the Japanese or anyone else. Has any of this free trade theory been practical in the real world? We have to readjust our thinking.”
U.S. Steel has been reducing capacity at all of its domestic plants, according to its annual financial report. It still has a plant in depressed Gary, Indiana. Wait until Nippon gets a load of that city, which has become destitute with the exit of heavy industry over the years. As the steel industry left Gary as well as the South side of Chicago during the 1970’s and 1980’s the “new jobs” theoretically promised by free trade never arrived. These hallowed out neighborhoods are rife with crime and poverty today. If U.S. Steel ever closes in Gary, imagine the carnage revisited there should that day come again.
For Jones, the running theme is: if only Washington thought more like Tokyo.
“Warren Buffet is now investing in the big trading companies based in Japan that broker commodities and goods exports from Japan to the rest of the world. I guarantee you that when Warren Buffet started buying into these Japanese icons, the Japanese let him know that he was not going to get any controlling interest,” Jones said. “I assure you Ford cannot buy Honda and even when Renault bought a stake in Nissan, they were not allowed a controlling stake.”
The U.S. Steel deal with Japan shows how U.S. global trade thinking exists on another plane of economic reality. It is a one-world kumbaya view of markets that, with the exception of maybe the U.K., which has no manufacturing base to speak of, treats the planet like the nation state, and the nation state like some city or town, where one can easily shift production from California to Idaho, or the U.S. to Mexico. No different. China does not think like this. Germany doesn’t think like this. Japan sure doesn’t. It’s why Microsoft’s X Box gaming console is in last place in Japan, while Nintendo and PlayStation blow it away.
“Let’s say you have three football teams – one is Japan, one is Germany and the third team is the U.S. team coached by Mr. Free Trade. Tom Brady is his quarterback. Coach Free Trade believes his team should never kick field goals, only use the running game, and before we tackle someone, we have to ask them if it’s okay,” Jones said. “When the U.S. team consistently loses games, Mr. Free Trade tells his players ‘you have to learn how to compete, you are not efficient, you have to work harder.’ Look, I don’t care how good Tom Brady is, he is not going to win a game playing under those constraints.”
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