As signs emerged that President Biden was preparing to block Japanese steelmaker Nippon Steel from acquiring Pittsburgh-based US Steel, top Japanese officials repeatedly warned that quashing the merger would hamper economic ties between the allies.
Japan's largest business lobby, Keidanren, said in September that U.S. investment opportunities would be damaged if Nippon Steel's $15 billion bid were blocked. Prime Minister Shigeru Ishiba of Japan contacted Mr Biden and asked him to approve the deal at what he called a critical moment.
In the United States, both Mr. Biden and his opponent, Donald J. Trump, have spoken out against Japan's takeover of US Steel, an iconic American company in a key electoral state, during a heated presidential campaign. Mr Biden halted the merger on Friday, arguing that foreign control of US Steel would endanger America's national security.
Nippon Steel and US Steel have attacked Biden's decision, calling the review of the deal “deeply corrupted by politics” and its rejection “shocking.” The companies said Friday they would consider taking legal action to revive the deal.
But while Biden's decision is a worrying sign to Japan's leaders about the dangers of American politics, it is not expected to deter other companies from making deals in the United States.
Japanese companies have had little choice in recent years but to make a significant move toward the United States as it has become more difficult for them to invest in China. Now, in anticipation of a second Trump administration, executives are even busier preparing new investments in America.
For decades, Japanese companies have sought growth opportunities outside the country, where the population is aging and declining and currency fluctuations have threatened export business. Much of that expansion has been focused on the United States and China, which have long competed to be Japan's largest trading partner.
But it has become harder for Japanese companies to operate in China due to less friendly regulations and competition from state-backed rivals. China's share of Japanese foreign direct investment has fallen steadily over the past half decade, while it has risen in the United States. Japan became the largest investor in America in 2019 – a position it has maintained every year since.
While the volume of Japanese-led deals in the United States stalled slightly last year, trade experts expect investment to pick up again when President-elect 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 energy companies are eyeing a number of potential investments in natural gas and other energy projects promoted by Mr. Trump. At a Trump press conference last month, Masayoshi Son, the CEO of Japanese technology company SoftBank, pledged to invest $100 billion in the United States over the next four years.
“Business leaders will not look at a unique case like Nippon Steel and decide to forego investment in the United States,” said Masahiko Hosokawa, a professor at Meisei University and a former senior official at Japan's Ministry of Commerce. “This is not a case that will cause harm, especially in the medium to long term.”
Japan's largest business publication Nikkei wrote on Saturday that Nippon Steel's crushed bid was the result of a miscalculation that “economic rationality” would prevail even in a presidential election year.
In December 2023, when Nippon Steel announced its plans to acquire US Steel, company executives believed the deal would move quickly. As the Committee on Foreign Investment in the United States reviewed the deal, Nippon Steel doubled its bet on the United States and pulled out of a long-standing joint venture in China that could have raised suspicions among regulators.
Nippon Steel's bid, on the other hand, provoked strong reactions from some politicians and labor leaders, who said the purchase of a storied American manufacturer by a foreign entity 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 offer, Nippon Steel offered a large premium on US Steel's shares and promised to invest billions in the US company's factories. Takahiro Mori, the Nippon Steel executive responsible for the deal, traveled repeatedly to the United States to hold meetings with more than 1,000 employees, local officials and others with a stake in the deal.
Late last month, the review board, known as CFIUS, sent a letter to the White House saying it could not decide whether Nippon Steel should buy US Steel. That cleared the way for President Biden to terminate the transaction.
At the same time, China is trying to strengthen relations with Japan. Some speculate that these measures have been taken in anticipation of a trade war between the United States and China, which is expected to worsen when Trump comes to power.
In November, Beijing resumed a policy allowing Japanese nationals to make short visits without a visa. Japan has been working to relax visa requirements for Chinese visitors. In September, China said it would gradually resume Japanese seafood imports after banning them in response to Japan's release of treated radioactive water into the ocean.
William Chou, deputy director of the Japanese policy center at the Hudson Institute, a Washington think tank, said he viewed the Nippon Steel case as a “one-off.”
“The US has a long history of being a stable environment, and China is not an attractive place to increase investment at the moment,” Mr Chou said. “But that doesn't mean Japan won't feel the urge to hedge its bets.”
In July, as signs emerged that the Nippon Steel takeover might not be approved, one of its distributors, Marubeni-Itochu Steel, said it would buy a stake in a Spanish steel company.
A person with knowledge of the purchase said Nippon Steel was keen for Marubeni-Itochu Steel to expand its presence in Europe, a market that has become increasingly important since hopes faded that Nippon Steel would gain a bigger foothold in the United States.
