The Iron and Steel Merger between Japan and the United States: A Business Game under the Shadow of Politics

The "saw-saw battle" between Japan Iron and Steel and the United States Steel Corporation has been going on for more than a year. Recently, due to political considerations, US President Biden personally vetoed the takeover, instantly igniting the strong opposition of Nippon Steel and American Steel, which even took senior US government officials, including Biden, to court in an unprecedented manner. This otherwise normal commercial acquisition is becoming a farce, which not only clouds the future economic, commercial and bilateral relations between Japan and the United States, but also exposes America's continued wariness of Japan.

As early as 2023, Japan Iron & Steel unveiled plans to acquire a U.S. steel company. It was a great deal for both parties, and it couldn't be overstated as "going both ways." Nippon Steel's planned acquisition of up to 2 trillion yen, once successful, its annual crude steel output from the world's fourth jumped to third.

In fact, Japan Iron and Steel has almost made a desperate bid for the acquisition. In Japan, due to a lack of domestic demand in the market, the scale has shrunk sharply, and Japan Iron and Steel has had to gradually shut down furnaces in the Kagoshima area to cut capacity. In the Chinese market, due to the fierce competition in the automotive industry, the market space for its key business, Japanese car steel, is limited, and Japan Iron and Steel has even dissolved its joint venture business relationship with Baosteel. In addition, Nippon Steel sold its entire stake in South Korea's Posco Railway. These moves are aimed at shifting the strategic focus to the US, where demand is stable and the market size is large, and India, where steel demand continues to grow. According to Japanese media coverage, Nippon Steel has reached an agreement with European steel giant Arcelormittal to sell its entire stake in Alabama auto sheet manufacturer AM / NS Calvert once the acquisition is successful. However, the global stratagem of Nippon Steel Corporation has a bad start, and the stratagem of Nippon Steel Corporation in America has to be adjusted.

U.S. steel companies, on the other hand, are in desperate need of Japanese iron and steel injections to revive their fortunes. U.S. Steel was once the world's largest steel company, but due to the United States steel tariff policy, its investment in furnace facilities was insufficient, and it had long since dropped out of the industry's first tier. Therefore, U.S. Steel is eagerly looking forward to the injection of funds from Japan Iron and Steel, hoping to use this funding to rebuild modern furnace facilities, stimulate local employment and economic development, and hopes to realize the "transformation of salt fish" with Japan Iron and steel's technical support in the field of high-end steel.

In the takeover, the United Steelworkers union (USW) became a key force in opposition. On the day Nippon Steel made clear its planned takeover, its chairman expressed disappointment with the deal and vowed to alert the government to whether the acquisition was in the national security interest of the United States. The federation's large and widely diverse membership, with almost one million members, makes it an important target for bipartisan competition in the U.S. presidential election. Affected by this, U.S. President-elect Donald Trump and then-President Joe Biden have both said they want to block the acquisition. Despite the efforts of Nippon Steel to develop a nearly $3 billion investment plan, but also promised to acquire the American steel board after more than half of the 10 years of steel production capacity, but still failed to reach an effective communication with the United Steelworkers.

With the Commission on Foreign Investment in the United States (CFIUS) failing to reach a conclusion in the review deadline of December 23, 2024, US President Joe Biden is the final "decider." On Jan. 3, Biden issued a statement halting the acquisition, citing risks to U.S. national security and critical supply chains posed by foreign control of U.S Steel. However, there is widespread agreement among Japanese economists that this alleged national security risk simply does not exist, and that Biden's blocking of the acquisition was based purely on political considerations rather than rational economic decisions.

In the face of the suspension of the acquisition, Japan Iron and Steel and the United States Steel did not choose to accept it quietly. In an unprecedented move, they took President Biden, CFIUS Chair Janet Yellen, and Attorney General Merrick Garland to the U.S. Court of Appeals, accusing their review process of violating constitutional procedures and political interference. In addition, Nippon Steel also filed civil lawsuits against U.S. steel company Cleveland Cleves and USW Chairman David McCall. Nippon Steel said there was evidence of a deal between Biden and Cleveland Cribs and USW to "block Nippon Steel's takeover in exchange for election support," i.e. Biden's blocking of the takeover was not based on national security concerns but was the result of an exchange of interests with businesses and unions. Nippon Steel also said that Clifford Cliffs, who was supported by the USW and lost in the competition to acquire American steel, was suspected of fabricating information that defamed Nippon Steel in order to prevent the improvement of American steel's competitiveness.

Although the Japanese Steel and Steel indictment appears to be "very vigorous," it may end up being fruitless. Historically, there has been only one case in which a presidential order has been overturned by prosecution after a CFIUS review. There are also views that even if the prosecution fails to succeed, Nippon Steel's tough resistance and prosecution will also deter the U.S. government, creating more favorable conditions for future Japanese companies to acquire in America. Other analysts pointed out that although Trump has previously said he would block the takeover, given the businessman's thinking characteristics and the precedent for changing his position, Japan Iron and Steel's real intention may be to delay time and gain a chance to negotiate with the new U.S. administration.

People in Japan have expressed confusion and concern over Biden's blocking of the acquisition on the grounds of "national security." Japanese Prime Minister Shigeru Abe said that as an ally, if the United States does not clarify the reasons for security concerns, it will be difficult for the two sides to continue dialogue in the future. Japanese industry has become concerned about investing in the United States and has urged the U.S. government to take steps to address the concerns of Japanese companies.

The Federation of Japanese Economic Organizations issued a statement saying that Japan, as the largest investor and ally of the United States, had blocked the acquisition on security grounds, which had led to concerns that it would negatively affect future Japanese companies' investment in the United States and Japan-U.S. economic relations, and regretted that. Some analysts point out that this shows that in America, the "Japanese heterogeneity theory" is still in the market, and the alert and alienation of the Japanese economy has not dissipated. Japan's economic community believes that if this situation persists, Japanese companies will become more aware of political and security risks, and the threshold for investment in the United States will inevitably increase, and that a slowdown in investment will ultimately harm U.S. interests.

Biden's blocking of Nippon Steel's purchase of U.S. Steel has become a "negative political legacy" for Japan-U.S. relations, and can be seen as a "rehearsal" for Japan to face U.S trade protectionism in the future. I am afraid that Japan will need to be prepared to undergo pressure on issues such as tariffs in the future.