U.S. Steel Deal Looks Dead. Japan Won’t Hold a Grudge.
Kamala Harris and Donald Trump don’t agree on much, except stopping Japan’s Nippon Steel’s proposed $15 billion acquisition of U.S. Steel. Joe Biden’s White House has signaled that it will nix the deal as a supposed threat to U.S. national security.
From Washington, this looks like a bit grimmer-than-usual politics, given the crucial role in the looming presidential election of Big Steel’s home state of Pennsylvania. For Tokyo, it feels like an insult to one of America’s staunchest allies and, by the way, its biggest source of foreign direct investment, or FDI.
Japan wrested that title from the United Kingdom five years ago, and at last count had poured a cumulative $783 billion into U.S. partners and subsidiaries, according to the Japan External Trade Organization, or Jetro. “Japan has made a long-term bet on the U.S. as the only growing market in the developed world,” says William Chou, deputy director of the Japan chair at the Hudson Institute.
Iconic auto makers are doubling down on the U.S. for the electric-vehicle transition. Toyota Motor has earmarked $14 billion for an EV battery plant in North Carolina. But the largest FDI category, at $167 billion, is chemicals, which in tradespeak includes pharmaceuticals. Japanese buyers have closed three multibillion-dollar acquisitions of U.S. biotechnology firms over the past 18 months, led by Astellas Pharma’s $5.9 billion deal for New Jersey–based Iveric Bio last year.
The Nippon Steel rebuff may cool this enthusiasm, a bit. “At the margin, it might discourage some investors from putting the next dollar into the U.S.,” says Matthew Goodman, director of the Greenberg Center for Geoeconomic Studies at the Council on Foreign Relations.
Japan Inc. lacks great alternatives for all of the cash that its global corporate powerhouses spew, though. Its once-favored destination, China, has antagonized Tokyo with everything from laying claim to Japan’s Senkaku Islands to periodically locking up Japanese executives on espionage charges. “China lost the No. 1 spot in Japanese investor surveys around 2020, when the nature of Xi Jinping’s regime became apparent,” Chou says.
The U.K. was hot until the 2016 Brexit vote shook its status as a foothold into Europe, notes Tobias Harris, founder of consultant Japan Foresight.
Pending elections on both sides of the Pacific could pose new threats to Japanese-U.S. symbiosis. Prime Minister Fumio Kishida steps down as leader of the governing Liberal Democratic Party on Sept. 27, unleashing an unusually vociferous nine-way race to succeed him. “At least a few of the candidates are being a little more critical of the U.S.,” Harris says.
A bigger factor is Trump’s possible return to the White House. Japanese investors spied opportunity in Biden’s big industrial policy statutes, says Hiroshi Yoneyama, head of research at Jetro’s New York office.
The Inflation Reduction Act, with its generous green energy subsidies, has encouraged EV-linked projects like Toyota’s. The Chips and Science Act indirectly sweetens pharmaceutical investment, increasing the National Science Foundation’s research budget by tens of billions. “The IRA and Chips Act were quite big news in Japan, boosting companies’ enthusiasm,” he says.
Trump has pledged to “rescind all unspent funds” from the IRA if elected. Japanese investors have “shifted slightly to wait-and-see” until Nov. 5, Yoneyama says.
With ties reaching back to the 1980s and an increasingly truculent China on Tokyo’s doorstep, the U.S.-Japan alliance should withstand whatever the next four years bring, however.
“In geostrategic terms, Japan is willing to put up with a lot to maintain the relationship,” says Harris.