The proposed merger of the two countries’ leading steel companies has recently become a prominent issue in the complex system of US-Japanese relations.
A brief summary of the background to the proposed merger between Nippon Steel and US Steel
It is important to remember that, irrespective of the scale of the investment, it only makes sense to acquire assets if the acquirer can expect to recoup their costs (ideally, with interest). With this in mind, the new owner cannot avoid the necessity of optimizing processes in the purchased asset in order to eliminate the “flaws” that forced the previous owners to seek outside help. Unfortunately, as became clear following the large-scale mergers of leading companies in the American military-industrial complex in the mid-90s (when the number of the Pentagon’s main contractors was reduced tenfold), this is an extremely painful process in social terms, as it is invariably accompanied by redundancies.
Moreover, another Japanese corporation has already experienced the negative consequences of acquiring a troubled US asset. In 2006, Toshiba, at the time one of Japan’s leading financial and industrial conglomerates, purchased the American Westinghouse Electric Company, which was, to put it mildly, not in the best shape. It appears that Toshiba’s management did not pay enough attention to the problem of optimizing the purchased asset’s business processes, and its situation continued to deteriorate. Eventually, the purchased asset became a heavy burden on Toshiba, which finally sold it off in 2018. However, the consequences of carrying this burden for more than a decade had a very bad effect on a corporation which was once one of the pillars of the postwar Japanese economy.
And the management of Nippon Steel cannot afford this unhappy precedent when deciding to risk the purchase of US Steel, which is in far from the best of health. As a result it will be necessary to resort to some very painful surgery in order to improve the quality of its new asset.
That is why the leaders of the United Steelworkers (USW) union were wary when news about the proposed takeover of USS by a foreign purchaser in a bit to heal the company first broke. In order to clear up possible misunderstandings, Nippon Steel Vice-President Takahiro Mori addressed a special letter to USW members.
Apparently, they did not even see fit to respond to this message. The head of USW, David McCall, has publicly stated that the “so-called guarantees” from Nippon Steel’s management are not worth the paper they are written on. He insists that the Tokyo-based executives of the potential investor could change business plans at any time, leaving workers and their communities vulnerable.
Meanwhile, on the eve of the upcoming general election union discontent is proving to be an extremely important factor in US domestic politics.
Some political aspects of the Proposed merger between Nippon Steel and US Steel
This factor was clearly evident during the state visit to the US by then Japanese Prime Minister Fumio Kishida. For a number of related reasons, it was a very remarkable event in the whole system of bilateral relations. One of these was the fact that during his visit Fumio Kishida acted as a promoter of the interests of Japanese business in the American market, which in general is one of the most important markets for Japan.
As far as is known, Joe Biden’s guest did not raise the issue of the Nippon Steel project, a highly sensitive issue for his hosts, but rather chose to focus on other Japanese business interests in the United States. This is quite understandable, as just a month before Joe Biden had described USS “as an iconic American steel company,” and that it was “vital” that it remain “domestically owned and operated.”
Following this declaration the USW leadership announced its support for Joe Biden (at the time, still the Democrat candidate) in the US elections. Significantly, his rival Donald Trump has also opposed the deal. Commentators on the above declaration by the US President see his use of the word “iconic” as a reference to the role that this company played in US industrialization.
But that raises an obvious question: if USS occupies such a significant position in the US national identity, and the prospect of it being taken over by a foreign owner (even if today Japan is among its closest friends) is seen as unacceptable, then why does the US government not immediately invest the amount in question, $15 billion, in the struggling company? After all, such sums are quickly found when, for example, it is necessary to support the gang of outright crooks ruling in Ukraine.
Be that as it may, the US administration has decided to intervene in a process that, on the face of it, and under the relevant “rules” (in this case the rules governing international trade), are beyond its purview. Two points, however, should be kept in mind. First, there is a view in American business circles that the very fact of such intervention could have a negative impact on the inflow of foreign investment into the US economy.
The answer to this objection is that in the present case this is an issue of national security, as the steel industry is one of the fundamental bases of almost all technical processes (including in the field of advanced technologies) used in the country’s industry. Thus, this is about more than just investment.
Moreover, since 1950 a dedicated body, the Committee on Foreign Investment in the United States (CFIUS), part of the US administration (specifically, the Department of Commerce), has been responsible for ensuring that foreign investment does not harm any aspect of national security. It was to this service that President Joe Biden turned for advice on what to do with the “mess” that has been brewing over his intervention in a certain proposed business deal. However, the expert review of deals like the one proposed necessarily takes time, and the report is unlikely to be completed before the end of this year. By then, there will be a new administration, which will be left to spit out or stomach the half-baked dish prepared by its predecessor.
Moreover, Nippon Steel’s leadership has recruited not just anyone, but former Secretary of State Mike Pompeo to lobby for the merger with USS. He is an unpretentious man and is guided by simple reasoning: Who is the main geopolitical adversary of the United States?—China; What needs to be done in order to confront China?—Strengthen ties with allies and partners in the Indo-Pacific region. And who is the key ally in this region?—Japan. Does the project that has caused so much unrest in the United States contribute to the strengthening of these ties?—Undoubtedly, so why are we waiting?
Nevertheless, let us see how he manages to complete the task for which Nippon Steel hired him. Probably spending a lot of money to do so.
Vladimir Terekhov, expert on the issues of the Asia-Pacific region, exclusively for the online magazine “New Eastern Outlook”
