A Glimmer of Hope for the Nippon Steel Bid?

Economy Politics World

Nippon Steel received a blow in January in the form of US President Joe Biden’s opposition to its takeover bid for US Steel. As a veteran bilateral trade watcher reports, this may not be something Japan can expect to see reversed under the new president, Donald Trump; the Japanese side will need to remain aware of the workings of economic policy in Washington.

Hosokawa Masahiko

Professor of economics at Meisei University and special advisor to the Japan Economic Foundation. Born in 1955, he graduated from the University of Tokyo before going on to the Advanced Management Program at Harvard Business School. Went to work at what is now the Ministry of Economy, Trade, and Industry, where he rose to lead the Chūbu Bureau, before heading out to work as a guest researcher at Stanford University and the head of the New York center of the Japan External Trade Organization. Arrived at his current position in 2020. Currently serves in an advisory position for a number of global corporations and is also an advisor to the Japanese government on security clearance issues. Makes frequent TV appearances and public speeches on economic security, Japan-US relations, semiconductor trade issues, and more, while also writing columns for the Sankei Shimbun and Nikkei. Author of works including Bōsō Toranpu to dokusai no Shū Kinpei ni dō tachimukau ka (Tips for Dealing with an Out-of-Control Donald Trump and a Dictatorial Xi Jinping).

Painting a “Big Picture” to Please Trump

Former US President Joe Biden’s decision to block Nippon Steel’s acquisition of US Steel in early January was a calculated political move made with the 2026 midterm elections in mind. It is clear that had Biden allowed the deal to go ahead, it would have been reversed by the incoming president, Donald Trump. The Democratic leader made a political calculation that if his rival were to come out of the deal looking good, and the United Steelworkers union were to switch their allegiances to Trump’s side, it would be bad for the Democrats’ chances in the election. The fight is already on.

Does this mean that the Nippon Steel debacle cannot be resolved during Trump’s term? I believe there is still a faint hope. It all comes down to whether the Japanese side can strike a deal that enables its US counterparts to come away with some kind of prize. Trump would happily do an about-turn on the issue if doing so enabled him to go into the midterm election campaign showing off the concessions he had won. The new US president likes big deals that cast him in a good light. However, Nippon Steel would be unable to deliver Trump such a “gift” on its own. Rather, achieving this would require a concerted, nationwide effort, perhaps in the form of increased investment in the US by the Japanese automobile industry. Because tariff increases imposed by the US government will likely target the automotive sector, a strategy that sees the auto and steel industries negotiating independently of each other will not work. Japan will not be able to convince the American side unless it can paint a “big picture” that encompasses both industries.

US Steel’s Edgar Thomson Steel Works near Pittsburgh, Pennsylvania. (© Jiji)
US Steel’s Edgar Thomson Steel Works near Pittsburgh, Pennsylvania. (© Jiji)

In his second term, Trump will focus on reviving America’s manufacturing industry. Japan needs to show that it can help. For example, Japanese interests can argue that by investing in the United States, semiconductor material and equipment manufacturers will be helping the industries that support America’s semiconductor sector.

It is also important to appeal to President Trump’s pride. Nippon Steel, when faced with the higher steel tariffs that the first Trump administration imposed, moved to buy US Steel and operate from the inside of the market rather than dealing with this barrier. Because the deal involves equity and technological investment by Nippon Steel in a US entity, it would be the first case of a Japanese corporation rehabilitating an American manufacturing counterpart, a source of external help Trump might welcome. Another strategy would be to appeal to Trump’s pride by framing the deal as a positive outcome from the tariff increases that he imposed in his first term.

World’s Largest Crude Steel Producers in 2023

Takeover Enjoys Majority Support

It was fellow steelmaker Cleveland-Cliffs that attempted to block Nippon Steel’s acquisition of US Steel, after losing out to its Japanese rival in a 2023 bid to buy the corporation. Despite being outbid, Cleveland-Cliffs has continued to try to drive down US Steel’s share price, because it lacked sufficient liquidity to make the purchase. Cliffs employees make up the majority of the USW’s membership, and the union and the steelmaker work hand-in-hand. At the same time, Cleveland CEO Lourenco Goncalves is said to have a strongly negative image in the industry, with fears that a buyout of US Steel by Cleveland-Cliffs could result in steelworks closures and redundancies.

A merger between US Steel and Cleveland-Cliffs would create an entity that controlled 100% of the steel mills in the United States. The automobile manufacturers that buy the steel produced are fiercely opposed to a merger between the two companies, because they could end up being forced to pay more for a lower-quality product, thereby undermining their own competitiveness. The US Chamber of Commerce has also voiced its opposition to any merger, a position that has largely been picked up by the American media.

At the same time, the Committee on Foreign Investment in the United States—despite having avoided passing formal judgement on the US Steel takeover, instead leaving the response up to Joe Biden—is known to be strongly in favor of the acquisition, with proponents on the committee outnumbering opponents nine to one. The only CFIUS member opposed to the deal was US Trade Representative Katherine Tai, who supported Biden’s position. As the CFIUS is a consensus-based organization requiring unanimous consent, the lack of any formal declaration means little; it is clear that, with the exclusion of Cleveland-Cliffs and USW, there is in fact much support in the United States for a merger between Nippon Steel and US Steel.

Fears Over Ishiba Government

I wrote above that if Japanese interests are to influence Nippon Steel’s takeover of a US company, rather than engaging in an earnest debate on issues of security, they will need to successfully paint a “big picture” of the positive outcomes that could be expected from a merger. In reality, however, there is no support for such a strategy. We cannot depend on the bureaucrats in charge of trade dealings; there will need to be direct political guidance telling them what to do in order to paint this big picture. Any grand plan to secure the auto industry’s support for a strategy to create a debt of gratitude with Nippon Steel can only be executed top-down with political leadership.

However, this is a feat beyond the capabilities of Prime Minister Ishiba Shigeru’s minority government, a fact that forces me to be pessimistic. Tokyo will need to make careful considerations regarding the best time to play its cards in negotiations; since one of Trump’s main focuses is the rebuilding of America’s manufacturing industry, the “cards” brought into play will need to appeal to this cause.

A major concern here is that Prime Minister Ishiba is seen by some in the US establishment as being too pro-China. The fact that Ishiba’s November 7 phone call with Trump just after he won reelection only lasted five minutes suggests that Trump doesn’t really take Ishiba seriously. Nor does Ishiba’s statement that Japan seeks to strike a diplomatic balance between the United States and China fill me with confidence for its future ties with Washington. Ishiba is scheduled to travel to the United States for a summit in February 2025, and dispelling such concerns is of utmost priority. It is no time to be discussing Nippon Steel. Indeed, the US message delivered to Ishiba might even be that, in the light of his pursuit of warm ties with Beijing as well, the Nippon Steel acquisition would constitute a national security risk.

A Painful Outlook for Nippon Steel?

Nippon Steel’s bid to take over US Steel became a pawn in the US presidential election. Having made its overture in 2023, Nippon Steel was unable to avoid being affected by the contest in the following year.

I should note, though, that Nippon Steel’s own lack of awareness of the US political landscape is also at issue here. The firm made a mistake when it decided to retain former US Secretary of State Mike Pompeo as an advisor in July 2024. The firm noted his strong connections to both the Democratic and Republican parties as a reason for bringing him on board, but Pompeo had a poor relationship with Trump during the latter’s first presidency. The friction between the two reportedly triggered Trump’s anger at the news of Pompeo’s appointment.

Around 25 years ago, I worked with Nippon Steel with the goal of reducing friction in the Japan-US steel trade. Back then, the steelmaker maintained a small “dream team” of skilled lobbyists in the United States. I believe the subsequent lack of trade friction between the nations has caused Nippon Steel’s intelligence gathering capabilities to get rusty. I think the corporation should rethink its decision to retain Pompeo as an advisor. Vice President JD Vance’s home turf of Ohio also happens to be the headquarters of Cleveland-Cliffs, which means that the Japanese side might need to make a move in that battleground state to get Vance in its corner.

If the current takeover bid fails, Nippon Steel’s business strategy will be significantly damaged, and the corporation will be forced to come up with an alternative proposal. The alternatives to a complete takeover would be the acquisition of a stake in, or the formation of a technical alliance with, the US entity—both options that involve a reduced level of cooperation. There would therefore be a need to bring other steelmakers on board or otherwise rethink strategy.

We should note, of course, that much of the ongoing friction in this issue has been caused not by the US policy on Japan, but rather by Cleveland-Cliffs CEO Lourenco Goncalves and his incendiary remarks on the nature of Japan as a trading partner and a nation. This is not something on which to base general observations. Failure to find a solution to this particular issue should not impede the overall flow of Japanese investment into the United States or the acquisition of American companies by Japanese entities. America takes the position that it welcomes direct investment from all countries—except China. Of course, for the purposes of negotiations relating to Nippon Steel, I believe that there are strategic benefits in continuing to frame the issue as one that could potentially affect Japanese industry.

(Originally published in Japanese on January 23, 2025, based on an interview by Mochida Jōji of Nippon.com. Banner photo: Nippon Steel’s East Japan plant in Kashima, Ibaraki Prefecture. © AFP/Jiji.)

business Nippon Steel Donald Trump