The Nippon Steel deal’s lessons for the world

The fate of Nippon Steel’s planned purchase of U.S. Steel remains uncertain.

Ironically, former U.S. President Joe Biden’s stiff opposition to the deal may have created space, if not impetus, for President Donald Trump to resurrect the acquisition. After all, Trump considers himself master of the "art of the deal."

While the original plan should not have been discarded, the revised proposal is worth pursuing. There are lessons to be learned from this episode, most especially about the new priorities that seem to animate U.S. thinking. Japan and all other U.S. allies and partners must learn them.

Nippon Steel announced in December 2023 that it would acquire U.S. Steel. The purchase made business sense; the U.S. steelmaker had been struggling for years and its technology was outdated. Japanese companies were looking for new markets as domestic demand faltered and they sought to reroute supply chains. A partnership between the two companies would create a more formidable competitor for Chinese firms and reaffirm the strength of ties between the two allies.

Compelling as that economic logic may have been, it could not overcome the politics of the deal. U.S. Steel is an American icon, once the largest company in the world and the first billion-dollar corporation. Today, it is a shadow of its former self, not even top among U.S. steel manufacturers, but that image lingers, creating a powerful psychological element — and headwind — to the proposed deal.

Moreover, the timing could not have been worse. The acquisition would occur in the middle of a high-stakes election campaign, in which Pennsylvania, the headquarters of U.S. Steel, was a battleground state. The desire to court union voters who feared layoffs by a foreign purchaser practically forced Biden’s hand.

Nippon Steel outbid other U.S. companies, offering $14.9 billion, and sweetened the deal with promises to protect jobs and to invest in other facilities. That wasn’t enough to overcome union opposition — or at least that of its leadership — and Biden vetoed the acquisition, charging that the company couldn’t be trusted to continue manufacturing in a crisis of a product that is critical to the defense industry. As an ally, that accusation is baseless and deeply offensive.

During the presidential campaign, Trump too opposed the acquisition and said he would not let it go through. Yet during his summit with Prime Minister Shigeru Ishiba last week, the new American president indicated that he wasn’t opposed to a deal as long as it was “an investment” and not a purchase. “Nobody can have a majority stake for U.S. Steel,” he said. “I don't want U.S. Steel being owned by a foreign country.... they are allowed to invest in it, and that's different.”

And, according to Trump, Nippon Steel — which he inexplicably called "Nissan" — had apparently agreed to do just that. Trump added that he would meet with Nippon Steel executives soon to “mediate and arbitrate” a new agreement.

Standing next to the U.S. president, Ishiba confirmed the news. “It is not an acquisition, it is an investment.... Japanese technology will be provided, and better-quality products will be manufactured in the United States, and U.S. Steel will make products which will contribute not only to the United States and Japan, but also to the whole world,” he explained.

On Monday, Chief Cabinet Secretary Yoshimasa Hayashi called the revised deal “a bold proposal that is completely different from the previous one,” and “a win-win situation” for both nations.

Details of the new deal have yet to be revealed — most likely because they have not yet been worked out. Most certainly, Nippon Steel will take only a minority stake, preserving U.S. Steel’s identity as an American company. It will however provide much-needed funds for the modernization of the steelmaker's facilities as well as facilitate the transfer of advanced technologies that boost efficiency and product quality.

It isn’t clear how much assistance Ishiba provided the U.S. president in reframing the deal. Reportedly, the Japanese side before the meeting was loath to bring up the subject, fearing that it would give Trump a reason to bash Japan. At the same time, however, Ishiba's team was prepared to tout Japanese investment in the U.S. to deflect pressure as Trump imposed tariffs on major U.S. trading partners. It seems obvious that framing the Nippon Steel deal in those terms would ease some of the tension and facilitate an agreement.

More complications must be expected. Trump’s announcement of new 25% tariffs on steel and aluminum products imported into the U.S. is one. So too are there reports, such as in Thursday’s Japan Times, of concern about the ability of Nippon Steel to prevent technology leaks if it does not fully acquire U.S. Steel.

The Japanese government must be ready to help Nippon Steel close the deal, providing whatever support — financial or political — that is needed. This sort of close coordination between the government and strategic industries will become increasingly common in this new geopolitical era.

There will be ample talk of opportunities for bilateral and multilateral cooperation and there must be a careful and calibrated balancing of national interests with current global economic realities. One of those realities is a new, carefully circumscribed meaning of cooperation when that word is used by the Trump administration. Quite simply, the president is demanding that U.S. allies and partners weigh U.S. national interests more heavily than their own.

Trump is sensitive to, if not fixated on, macroeconomic indicators that few economists consider relevant to the policies he wishes to implement. Nevertheless, his interlocutors must adopt that mindset. Ishiba focused on those indices during his summit with the American president, noting the shrinking U.S. trade deficit with Japan and pushing for actions that would reduce it further still, such as the import of U.S. liquefied natural gas.

This is the new terrain upon which world leaders, even friends, will engage with the United States. Policies must be re-evaluated to assess their worth in this new framework. It will be a jarring process, forcing a rethink of foundational assumptions about the nature of partnership with the U.S. Some will say that this adjustment is long overdue and that it reflects the realities of the (diminished) U.S. presence in the world today.

Perhaps. But it is also a striking departure from past practice. It marks the end of an era for the United States and signals a fundamental reworking of the policies and procedures of U.S. engagement.