US rejection of Nippon Steel’s bid for US Steel rankles Washington’s key ally in Asia

BANGKOK (AP) — U.S. President Joe Biden’s decision to reject a bid by Nippon Steel to acquire U.S. Steel on national security grounds isn’t the first time friction over trade and investment has irked Washington’s closest ally in Asia.

There have been plenty of scraps over trade in the past few decades, and Secretary of State Anthony Blinken sought to smooth ruffled feathers in a visit to Tokyo on Tuesday.

Nippon Steel Chief Executive Eiji Hashimoto said the top Japanese steelmaker was standing firm on its proposed $15 billion friendly acquisition. Nippon Steel and U.S. Steel filed a federal lawsuit challenging the Biden administration’s decision.

But the assertion that the proposed deal could threaten U.S. national security has stung.

Many in Japan see the decision as a betrayal by Washington after decades of U.S. pressure to lift barriers to investment and trade. The timing doesn’t help, with Japanese businesses already bracing for potentially damaging tariff hikes once President-elect Donald Trump takes office.

Japanese Prime Minister Shigeru Ishiba was blunt in warning that spoiling the deal might hurt Japanese investment in the U.S.

Here are some key issues at stake:

Making nice

While in Tokyo in a farewell tour before Biden leaves office, Blinken told reporters he believes that during the past four years the alliance with Japan has “grown stronger than it’s ever been before.” Japan and the U.S. are mutually the largest investors in each other’s economies, he noted, “strengthening the foundation for many years to come.” Japan’s Foreign Ministry said in a statement that the U.S. Steel decision came up during Blinken’s meeting with Foreign Minister Takeshi Iwaya. But it said only that the two sides had “reaffirmed the importance of Japan-U.S. economic relations, including investment in the U.S. by Japanese companies.”

Harsh words

Before Blinken’s visit, Ishiba, who has struggled to build support and momentum since he took office in October, was emphatic.

“As for why national security was cited as an issue, it must be clearly explained. Otherwise, future discussions on the matter will come to naught,” he said Monday. “No matter how much we are an ally, I believe that the points I have just made are extremely important for our future relations.”

He said, “It is an unfortunate fact that Japanese industry has voiced concerns about future investment between the U.S. and Japan. We have to take this very seriously.”

Japan’s Trade Minister Yoji Muto said the decision was “very regrettable.” Headlines in Japanese newspapers mainly focused on Nippon Steel and U.S. Steel’s plan to fight the ruling in court.

US-Japan alliance

Japan is the biggest and most important U.S. ally in Asia, a relationship forged during the U.S. occupation following Japan’s 1945 defeat in World War II. Nearly 63,000 troops are stationed at dozens of facilities across the country and Washington has urged Japan to build up its own defense capabilities as a counterweight to China’s growing influence and military power.

Japan counts on the U.S. to provide an umbrella of defense against its neighbors China, Russia and North Korea. Some critics have chafed at the decision to reject Nippon Steel’s bid for U.S. Steel, saying Washington was treating Japan like it does China, a potential adversary.

“When is an ally not a partner? Apparently when a Japanese company seeks to purchase an iconic U.S. corporation,” The newspaper The Japan Times said in an editorial. It described the concerns over national security as “incomprehensible,” adding “Trust has been greatly damaged and it is unclear what will be required to undo the harm.”

Track record on trade

Biden and Trump have both supported higher tariffs on imports of steel and aluminum from China, saying they are needed to insulate American producers from unfair trade practices and a flood of cheap imports. In 2018, Trump imposed 25% tariffs on imports of Japanese steel on “national security” grounds. The Biden administration agreed to a deal in 2022 to allow a certain quota of some steel products to be imported tariff-free. Any above that amount is subject to the 25% tariff.

Today’s trade frictions follow decades of negotiations that have led Japan to open its markets much more widely to foreign goods and services, transforming its retailing from mostly old-style department stores and mom-and-pop shops into outlet malls and big discount stores. Such “gai-atsu,” or foreign pressure, led Japanese automakers and other manufacturers chose to invest in U.S. factories, creating hundreds of thousands of jobs. Nippon Steel and U.S. Steel contend their deal would save American jobs, and business groups on both sides have objected to seeing the deal fall through as part of a broad shift in recent years away from greater openness.