Home Business The US backlash against Nippon Steel is wholly misguided

The US backlash against Nippon Steel is wholly misguided

0


Unlock the Editor’s Digest for free

The frayed end of 2023, with decoupling still an active force and geopolitics in ragged shape, is an odd time for any politician to suggest — even indirectly — that their nation does not trust its closest friends. 

Particularly so for the US, given the leaps of faith it continues to ask of its friends and the reminder by President Joe Biden, shortly after returning from Israel in October, that “American alliances are what keep us, America, safe”. 

But the now bipartisan American backlash against Nippon Steel’s $14.9bn purchase of US Steel — a deal driven by robustly commercial motives and for which the Japanese buyer is shelling out roughly twice what a US bidder was prepared to pay — appears to be shaped by the idea that even close friends merit suspicion. 

However ugly steel-state politics are on the eve of an election year, leveraging mistrust of Japan is a perversely odd strategy. Especially in an era in which the US has a chip war to fight, is actively courting direct investment from Japan and is pushing the “friendshoring” of supply chains as a unit of diplomatic trustworthiness. 

Japan reasonably thinks of itself as America’s closest ally in Asia. It is the host nation of the largest number of US military outside the US itself and a gargantuan customer of American hardware. Japan has also recently proved its friendship many times over — most prominently by joining the US in imposing restrictions on exports of high-end semiconductor production equipment, and by directly helping Washington rally sign-ups to the Indo-Pacific Economic Framework trade deal.

But, within 48 hours of the Nippon Steel announcement, the vague spectre of national security concern has been invoked. Three Republican senators have signed a letter decrying Nippon Steel as a company “whose allegiances clearly lie with a foreign state” and insisting that the Committee on Foreign Investment in the US “can and should” block the acquisition on those grounds.

A trio of Democratic politicians, meanwhile, wrote to the company to demand further clarity, with one of them, Senator John Fetterman, taking to social media to fume at the outrage that US Steel “have sold themselves to a foreign nation and company”.

There are several reasons why this backlash is flawed. The first is the casual conflation of Nippon Steel with the Japanese state, as if it were directly comparable with a Chinese or some other state-owned steelmaker. It is not, any more than US Steel is.

Explanations for the speed of Japan’s economic rise in the 1970s and 1980s leaned heavily on the idea that its corporations’ competitiveness was propelled by the government’s industrial policies and by the tight collusion of companies and state. However plausible that account might once have been, its accuracy has evaporated over the past 30 years. Government interventions may still happen from time to time, but the implication that Nippon Steel might be acting not out of its own commercial interests but in those of the Japanese state is wrong.

But a more harmful implication in the backlash rhetoric is that the mere Japaneseness of the acquirer is itself sinister — a suggestion that Heino Klinck, America’s former deputy assistant secretary of defence for east Asia, strongly rejects. “If this deal were not to be approved, it would cast a shadow on the alliance, and that is not in our interests,” he told the Financial Times. “I can’t think of any national security reason to use as justification for this not getting approved.”

A third oddity is the muddled nature of the other objections to the takeover. On the one hand, US investors have spent decades criticising Japanese companies for their failure to apply more aggressively profit-driven, shareholder-first standards. Now, with the prospect of a large Japanese company taking over an American rival, the implicit fear is that the Japanese company will somehow enforce a more pitiless standard of shareholder-first capitalism than the one under which US Steel currently operates. Many investors might see that as welcome progress. 

Each of these flaws catches the politicians leading the backlash in an ill-timed inconsistency. If Nippon Steel’s deal is approved, it will draw a mid-ranked American company under the umbrella of one of the world’s top three steelmakers, none of which is American. Specifically, it will make that company more competitive with Chinese rivals (that are genuinely state-owned) in an era where that battle is the greater threat. The tougher question, though, is that of trust. If Japan does not count as a legitimate buyer of assets in the US, who does?

leo.lewis@ft.com



Source link