FOCUS: Nippon Steel buyout spat hints at business fragility in U.S.
U.S. President Donald Trump's bid to attract investment threatens to undermine the appetite for corporate spending in an ironic twist, with the 18-month saga over Nippon Steel Corp.'s buyout of United States Steel Corp. showing the growing vulnerability of businesses in the U.S. market, according to analysts.
The U.S. administration's earlier blocking of the $14.1 billion takeover deal was clearly driven by political motives and corporate executives will no longer be able to make decisions regarding their U.S. operations based only business criteria, they said.
The wrangling in the high-profile case could lead global companies to think twice about making sizeable investments and acquisitions in the world's largest economy, with many moving to reduce their exposure to the U.S. market.
"I do think many companies are pausing investments and major capital expenditures, not only because of the Nippon-U.S. Steel deal but due to general uncertainty surrounding political and economic dynamics in Washington," said Zack Cooper, senior fellow at the American Enterprise Institute.
Trump had repeatedly rejected Nippon Steel's plan to take full control of U.S. Steel.
But Nippon Steel, the world's fourth-largest steel producer, and U.S. Steel, the 29th largest, said Wednesday following Trump's approval of the buyout plan that they had signed a national security agreement with the U.S. government and finalized the acquisition transaction.
Under the deal, the Japanese steelmaker is obliged to invest $11 billion by 2028 on bolstering the U.S. steelmaker's operations, far more than the previously planned $2.7 billion.
The U.S. government also obtained a golden share allowing it to veto key management decisions, such as when reducing investment, shedding production capacity in the United States or closing plants.
Nippon Steel CEO Eiji Hashimoto told a press conference on Thursday that his company had learned from a year and a half of negotiations with the U.S. government that a flexible management strategy is required.
The top executive said it had been believed that governments should not get involved in business deals.
"But now...governments are strengthening their involvement in economic and business matters through industrial policy," he said.
Trump's predecessor, Joe Biden, initially blocked the purchase of U.S. Steel on national security grounds, saying the manufacturing icon, based in Pittsburgh, Pennsylvania -- a key battleground state in the 2024 presidential election -- should be "American-owned and American-operated."
Trump also opposed the deal during the presidential race, saying the acquisition of a minority stake in U.S. Steel would not cause any issues, but foreign ownership of the company would not be good psychologically. He ordered a new review of the deal by the Committee on Foreign Investment in the United States in April with a deadline for Trump to make a final decision initially set for June 5.
"Because predictability is insanely low right now in the United States, Japanese companies are going to cut back the percentage of their business in the country," said Keisuke Hanyuda, the chief executive of Owls Consulting Group.
While rising costs must be dealt with, "The last thing a business wants is to lose predictability," said Hanyuda, a former Japanese trade ministry official in charge of trade talks.
Nippon Steel is betting on firm demand for high-tensile strength steel in the U.S. market, capitalizing on its advanced production technology for high-end steel plates used in products such as electric vehicles.
The United States is one of three growth markets for the Japanese steelmaker, compensating for shrinking domestic demand.
Under Trump, the steel, aluminum, auto and semiconductor sectors have been targeted by specific tariffs driven by political pressures and companies in these industries should consider other markets for growth to hedge their risks, analysts say.
Earlier this month, Trump signed an order doubling the tariffs on steel and aluminum imports to 50 percent.
"I think Japanese companies will have a difficult time purchasing famous American companies in sectors that President Trump prioritizes, such as autos, steel, aluminum, and chipmaking," Cooper at the American Enterprise Institute said, though investment in other sectors may still be viable.
"But any Japanese company that is considering a major deal in the United States should develop a detailed political strategy before announcing a deal, lest they suffer similar roadblocks as Nippon Steel," he said.
The United States remains a lucrative market with high growth potential but some global companies are beginning to reduce their reliance on it after the tariffs imposed by Trump, Hanyuda said.
The European Union and the Association of Southeast Asian Nations, for example, have resumed economic partnership negotiations, while the EU is also looking at Japan, which is part of a trans-Pacific free trade pact that took effect in 2018 without the United States.
Related coverage:
U.S. Steel's strategic importance growing: Nippon Steel CEO
Nippon Steel finalizes deal to make U.S. Steel wholly owned
Trump effectively approves Nippon Steel's takeover of U.S. Steel
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First, the potential positioning of the MDTF in Japan could lead to a narrowing of the role of U.S. forces in South Korea, confining them to defensive operations on the Korean Peninsula and limited overseas support. This shift would effectively relocate the center of gravity of the South Korea-U.S. alliance towards Japan, potentially diminishing South Korea's strategic relevance. As a result, South Korea will need to recalibrate its position within the alliance. By linking with the MDTF, South Korea has the opportunity to maintain and enhance the strategic value of U.S. forces stationed in the country. A failure to do so could risk relegating South Korea to a secondary role within the trilateral cooperation framework, undermining its ability to influence regional security dynamics. Thus, the establishment of the MDTF in Japan would heighten the pressure on South Korea to participate in the alliance's strategy to counter China. The MDTF would significantly enhance the U.S. and Japanese capabilities to intervene in potential conflicts in the Taiwan Strait and the East China Sea, compelling South Korea to define its level of involvement in these strategic calculations. This could lead to increased military commitments and a reevaluation of South Korea's defense posture. The MDTF represents a new testing ground for trilateral security cooperation among the United States, South Korea, and Japan. Operations in cyber, space, and electronic warfare necessitate real-time information sharing and a high degree of trust among the three nations. This requirement could catalyze the institutionalization of cooperation among the three countries, potentially evolving into a de facto quasi-alliance. Conversely, China and Russia are likely to perceive these developments as new threats. China has already deployed over 300 military satellites and is accelerating the development of hypersonic weapons. Russia, through its actions in the Ukraine conflict, has demonstrated its long-range missile and electronic warfare capabilities. The establishment of the MDTF in Japan is likely to exacerbate strategic tensions with these nations, prompting them to enhance their military capabilities in response. South Korea's Strategic Response to the Changing Landscape of Alliances The planned establishment of the MDTF in Japan and the potential deployment of the MDEB in South Korea present both challenges and opportunities for South Korea. First, the South Korean government must reaffirm the strategic value of U.S. forces stationed in the country through high-level strategic dialogues with the United States. This includes clarifying the core missions of U.S. forces (deterring North Korea and initial response) and coordinating roles with the MDTF to ensure that South Korea's interests are adequately represented. Second, South Korea should actively participate in trilateral cooperation by institutionalizing joint cyber and space training exercises and information-sharing mechanisms, thereby demonstrating its role as a 'leading actor' in the alliance. This proactive approach would not only enhance South Korea's strategic value but also solidify its position within the trilateral framework. Third, South Korea must establish parameters for its participation in countering China, maintaining the principle of deterrence focused on the Korean Peninsula while proactively defining the scope and conditions under which it can contribute during crises related to China. This strategic clarity will be essential for navigating the complexities of regional security dynamics. Finally, South Korea should expand its contributions in emerging domains such as cyber, space, and electronic warfare, articulating the capabilities of its military to enhance its strategic value amid the evolving landscape of the South Korea-U.S. alliance. By doing so, South Korea can position itself as a critical player in the broader Indo-Pacific security architecture. The establishment of the MDTF headquarters in Japan marks a pivotal moment in reshaping the strategic landscape of the Indo-Pacific. The U.S. forces in Japan are set to become the focal point for regional power projection, while the role of U.S. forces in South Korea may become more limited. However, South Korea should not view this development solely as a diminishment of its standing within the alliance. Instead, it presents an opportunity to secure new areas of contribution and to expand the South Korea-U.S. alliance from a focus on Korean Peninsula defense to a broader commitment to stability in the Indo-Pacific region. Ultimately, it is crucial for South Korea to position itself not as a passive follower but as an active architect of the future of its alliances, shaping its role in a rapidly evolving geopolitical environment. By embracing this proactive stance, South Korea can enhance its strategic relevance and contribute meaningfully to the collective security of the Indo-Pacific region.
