What is happening?
More than a year ago, in December 2023, Japan’s Nippon Steel announced its plans to purchase its American counterpart, U.S. Steel. At first glance, the deal seemed mutually beneficial. Nippon Steel, the world’s fourth-largest steelmaker, would boost its global output capacity from the current 65 million to 85 million metric tons annually. For U.S. Steel, which had endured nine consecutive quarters of falling profits, the merger offered a chance to enhance market competitiveness and save thousands of jobs. However, early this year, U.S. President Joe Biden blocked the $14.9 billion purchase, sparking both praise and criticism while raising questions about the future of U.S.-Japan business relations and beyond.
What is the broader picture?
Ever since the merger was announced, it became a significant topic in the U.S. presidential election campaign, with both Joe Biden and Donald Trump vowing to block the purchase. The deal underwent months of review by the Committee on Foreign Investment in the United States (CFIUS) to assess potential risks to national security. However, the committee failed to reach a consensus and referred the decision to Biden last December. Biden ultimately blocked the bid, arguing that a domestically owned steel industry is vital for national security and resilient supply chains. His decision was praised by fellow Democrats and the United Steelworkers union, both of which emphasized the importance of steel production for protecting national and economic security.
On the other hand, Biden’s decision provoked significant criticism as well. U.S. Steel CEO David Burritt called the move “shameful and corrupt,” describing it as an insult to Japan and asserting that “the Chinese Communist Party leaders in Beijing are dancing in the streets.” Japan has been a key U.S. ally in the Indo-Pacific region for decades, a partnership that has become even more critical considering China’s economic and military rise. In the steel industry, six of the world’s ten largest companies are Chinese, while U.S. Steel ranks 24th. Jason Furman, a former economic adviser in President Obama’s administration, also condemned the decision, calling Biden’s justification “a pathetic and craven cave to special interests that will make America less prosperous and safe.” He added that he was disappointed to see Biden betraying American allies.
Why does it matter?
Nippon Steel and U.S. Steel are now jointly suing the U.S. government to reverse the decision, arguing that Biden’s move was illegal political interference. The situation has raised serious concerns within economic circles in both countries about the future of U.S.-Japan investments, as Japan’s Foreign Minister Takeshi Iwaya stressed to the U.S. Secretary of State Anthony Blinken.
Before Biden’s decision, Nippon Steel had proposed several concessions to address concerns about the merger. These included relocating its U.S. headquarters to Pittsburgh, where U.S. Steel is based, and offering the U.S. government veto power over any potential reductions to U.S. Steel’s production capacity. Despite these efforts, Nippon Steel is now facing a potential $565 million penalty payment to U.S. Steel instead, following the deal’s collapse.
Beyond economic circles, there are growing worries that the failed merger could undermine trust between the U.S. and Japan. However, outgoing U.S. Ambassador to Japan Rahm Emanuel downplayed these concerns. He stated that the U.S.-Japan alliance is better prepared than before to counter threats posed by China and Russia, emphasizing that the relationship is “deeper and stronger than any single economic or business transaction.” His assessment will soon be put to the test, not only by the developments in the U.S. Steel case but probably also by the impending second term of Donald Trump in the White House.