The Nippon Steel Deal Is Key To U.S. Indo-Pacific Strategy

Recent news reports indicate that President Biden plans to block Nippon Steel’s proposed acquisition of U.S. Steel based on “national security” concerns, a justification that does not hold up to scrutiny. If these reports are accurate, Biden risks not only dashing the hopes of U.S. Steel’s 22,000 American workers and the communities they sustain economically but also undermining American national security in the process.

This deal promises job security for U.S. Steel’s workers, a substantial infusion of capital and cutting-edge technology for the company, strengthened domestic American steel production, and closer ties with Japan—our most important ally in the Indo-Pacific and an important contributor to the U.S. economy. 

Nippon Steel’s proposal is under review by the Committee on Foreign Investment in the United States (CFIUS), a panel comprised of representatives of key federal agencies that assesses foreign investments for potential threats they may pose to national security. It provides recommendations to the president, who has the authority to approve or block transactions.

Last week, The Financial Times reported that both the Pentagon and State Department—member agencies of CFIUS directly engaged in protecting national security—have concluded that the deal poses no national security risks. However, U.S. Trade Representative Katherine Tai, whose job is focused on international trade policy, opposes the acquisition, reportedly due to national security concerns. While Nippon Steel has repeatedly offered to take steps to address her security concerns, Tai has shown no signs of reversing her position. 

Her obstinance is troubling on multiple levels. As a former CFIUS official in the Biden administration aptly put it, “Tai is playing a game that exposes the CFIUS process to becoming a permanent tool of politicians, unreasonably expands the scope of what is considered national security and will force the U.S. to put in writing that Japan is a national security threat, which is simply untrue and detrimental to American security.”

Indeed, Japan is our most important ally in the Indo-Pacific. In 2022, President Biden prioritized the U.S.-Japan alliance as the cornerstone of security and stability in the region when he launched his Indo-Pacific Strategy to address the challenges posed by China. In a rare demonstration of bipartisan consensus, the policies comprising the strategy are largely based on those implemented by the first Trump administration.

Blocking the deal would undermine the U.S.-Japan alliance. As Japanese prime minister Shigeru Ishiba noted just before taking office, rejecting it “could undermine the trust of its allies.” And once in office, he sent a letter to President Biden asking him to reconsider his opposition.

The proposed acquisition aligns with Biden’s Indo-Pacific Strategy in a number of ways, including furthering the concept of “friendshoring” and the practice of building resilient supply chains among trusted allies to reduce reliance on potential adversaries. China’s increased use of its dominance in critical industries as a weapon underscores the importance of this strategy. Beijing, which now produces over half of the world’s crude steel, banned exports of minerals essential for the production of advanced semiconductors and military technologies to the United States just two weeks ago.

The economic benefits of the deal are equally compelling. Nippon Steel is renowned for its cutting-edge technologies that minimize emissions and produce high-quality steel efficiently and cost-effectively. Its investment in U.S. Steel would not only sustain existing jobs but also create new ones. That’s why steelworkers held rallies last week at U.S. Steel facilities in Pennsylvania, Indiana, Minnesota, and Alabama in support of the investment. 

Japanese investment undergirds the U.S.-Japan alliance, linking the economies of the two countries in mutually beneficial ways. Japan already holds $800 billion in foreign direct investment in the United States—more than any other country—while the United States remains Japan’s largest direct foreign investor by far. Japanese companies in the U.S. employ almost one million Americans—more than half of whom are in the manufacturing sector—and account for $80 billion in merchandise exports.

As CFIUS approaches a deadline of December 23 to make its recommendation, President Biden must recognize the strategic and economic merits of this acquisition and allow it to proceed. The proposal represents more than a simple business transaction. It will significantly benefit the American economy, strengthen America’s critical steel manufacturing capabilities, enhance the U.S.-Japan alliance, and bolster our national security. It will also be an important step in securing a bipartisan vision of a secure, stable, and prosperous Indo-Pacific and a vital measure in countering the economic and geopolitical challenges posed by China. 

Daniel Bob has worked on U.S. foreign and economic policy toward the Indo-Pacific in senior positions in the U.S. Senate and House.

Image: Evgenii Panov / Shutterstock.com.