Amid signs that President Biden is preparing to block Japanese steelmaker Nippon Steel's takeover of Pittsburgh-based U.S. Steel, Japanese officials say calling off the merger would hurt economic ties between the allies. He repeatedly warned that it would cause trouble.
Japan's largest business group, Keidanren, said in September that U.S. investment potential would be hurt if Nippon Steel's $15 billion bid is blocked. Japanese Prime Minister Shigeru Ishiba contacted Mr. Biden and asked him to approve the deal at what Mr. Biden called a critical juncture.
In the United States, as the presidential campaign heats up, both Mr. Biden and his opponent, Donald J. Trump, have announced their opposition to Japan's takeover of the iconic American company US Steel in key electoral states. Biden on Friday blocked the merger from proceeding, arguing that foreign control of U.S. Steel threatens U.S. national security.
Nippon Steel and U.S. Steel condemned Biden's decision, calling the deal's review “deeply corrupted by politics” and its rejection “shocking.” The companies announced Friday that they would consider taking legal action to try to revive the deal.
But while Biden's decision sends a worrying signal to Japanese leaders about the dangers of US politics, it is not expected to stop other companies from trying to do business in the US. .
In recent years, Japanese companies have had little choice but to pivot largely to the United States, as investment in China has become difficult. Now, in anticipation of the arrival of the second Trump administration, management is even busier preparing for new investments in the United States.
For decades, Japanese companies have sought growth opportunities abroad, where the population is aging and shrinking and currency fluctuations are putting export activity at risk. Much of that expansion is directed toward the United States and China, which have long claimed Japan's largest trading partners.
But deregulation and competition from state-backed rivals are making it increasingly difficult for Japanese companies to operate in China. China's share of Japan's foreign direct investment has steadily declined over the past five years, while the United States' share has increased. Japan became the top investor in the United States in 2019 and has maintained that position every year since.
Japan-led trade volumes in the U.S. stagnated slightly last year, but trade experts expect investment to pick up again once President-elect Donald Trump takes office. That's because the risk of higher tariffs gives Japanese and other foreign companies a greater incentive to invest and produce in the United States than in other countries, especially China.
Japanese power companies are eyeing a number of potential investments in natural gas and other energy projects promoted by Trump. At President Trump's press conference last month, Masayoshi Son, CEO of Japanese technology company SoftBank, pledged to invest $100 billion in the United States over the next four years.
“Corporate leaders will not consider special cases like Nippon Steel and decide to withhold investment in the United States,” said Masahiko Hosokawa, a professor at Meisei University and a former senior official at the Ministry of International Trade and Industry. “This is not an incident that will cause any damage in the medium to long term.”
Japan's largest business newspaper, the Nikkei Shimbun, wrote on Saturday that Nippon Steel's failed bid was the result of a miscalculation that “economic rationality” would prevail even in a presidential election year.
When Nippon Steel announced plans to acquire U.S. Steel in December 2023, company executives thought the deal would move quickly. As the Committee on Foreign Investment in the United States reviews the deal, Nippon Steel is doubling down on its bets on the United States and exiting a long-standing joint venture in China that could have drawn regulatory suspicion.
Instead, Nippon Steel's bid drew fierce opposition from some politicians and union leaders, who argued that a foreign company's takeover of a prestigious American manufacturer would undermine national security and local industry. Both President Biden and President-elect Trump said early on that they opposed the deal.
As part of its bid, Nippon Steel offered a hefty premium for U.S. Steel stock and pledged to invest billions of dollars in the U.S. company's plants. Takahiro Mori, the Nippon Steel executive in charge of the transaction, traveled repeatedly to the United States and met with more than 1,000 employees, local officials, and other parties involved in the transaction.
The review board, known as CFIUS, sent a letter to the White House late last month saying it could not decide whether to allow Nippon Steel to acquire U.S. Steel. This cleared the way for President Biden to terminate the deal.
At the same time, China is also working to strengthen its relationship with Japan. Some believe that these measures were taken in anticipation of the US-China trade war, which is expected to intensify with Trump's inauguration.
In November, the Chinese government resumed its policy of allowing short-term visits by Japanese nationals without a visa. Japan is working to ease visa requirements for Chinese tourists. In September, China announced that it would gradually resume imports of seafood from Japan, which had been banned following Japan's release of radioactively treated water into the ocean.
William Chow, deputy director of the Hudson Institute Japan Policy Center, a think tank in Washington, said he viewed the Nippon Steel incident as a “one-off.”
“The United States has a long history and stable environment, and China is not an attractive place to increase investment at this time,” Chou said. “But that doesn't mean Japan doesn't feel a tendency to be risk-averse.”
In July, one of the distributors, Marubeni-Itochu Steel, announced it would acquire a stake in the Spanish steel company amid signs that the Nippon Steel acquisition might not be approved.
People familiar with the acquisition said Nippon Steel was keen to expand its presence in Europe, an increasingly important market, as expectations for Marubeni-Itochu Steel to gain a larger foothold in the United States faded. .