Symposium Overview
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Bruce Aronson is an adjunct professor at NYU School of Law and senior advisor at the Japan Center of the U.S.-Asia Law Institute.
Every decade presents at least one occasion for a serious evaluation of the state of US-Japan economic relations. The tortured course of Nippon Steel’s acquisition of U.S. Steel and highly unusual terms imposed by President Trump, together with the recent imposition of high tariffs on Japanese exports and renewed demands that Japan contribute more to the cost of stationing American troops, prompts such an evaluation now. Whereas in the 1980s Japan was viewed as America’s greatest economic rival, today it is simply one among many countries with which the US has a trade deficit. But it is also America’s closest strategic ally in Asia in an emerging contest with China to shape the international order. Despite this strategic fit, we are now forced to wonder about the future path of US-Japan economic relations.
This symposium uses Nippon Steel’s purchase of U.S. Steel as a lens to analyze the health and likely direction of US-Japan economic relations. The transaction is both significant in and of itself, and also demonstrates the important role that Japan, already the United States’ largest foreign investor, can play in helping to revitalize America’s manufacturing capacity – if it is allowed to.
To recap, the Nippon-U.S. Steel transaction was blocked by President Biden on January 3, 2025, given a new lease on life by President Trump a few weeks later when he took office, approved by President Trump on June 13, and closed on June 18. Trump’s approval was conditioned on the companies complying with the terms of a national security agreement drafted by the federal government. Trump described the transaction as a “partnership,” even though it was a full buyout, and said it gave the US government a “golden share” in U.S. Steel – a term that does not appear in US law – even though the US government did not buy any shares. His use of these terms seemed intended to provide an appealing image consistent with his prior statements that U.S. Steel will remain controlled by the US.
More important than the symbolic terminology are the actual restrictions on Nippon Steel’s operation of U.S. Steel under the national security agreement. While the White House did not disclose the terms of the agreement, Nippon Steel said it allows the president to appoint a director to the company’s board and gives him a veto over key business decisions. Nippon Steel also promised to invest $11 billion in the United States above the purchase price by 2028 and further invest in a greenfield project after 2028 (reported to cost $3 billion).
In a subsequent detailed filing with the Securities and Exchange Commission, U.S. Steel said decisions that require Trump’s written consent include idling or closing production facilities through 2035, relocating U.S. Steel’s Pittsburgh headquarters or changing the company’s name, reducing the base salary of employees, significantly reducing product prices, and materially changing the sourcing of inputs. Any reduction, waiver, or delay in Nippon Steel’s investment plan also would require Trump’s consent.
In a second SEC filing on June 25, U.S. Steel disclosed that, subject to regulatory approvals, it planned to issue one share of Class G Preferred Stock (which it called “the Golden Share”) to the US government.
Maintenance of steel production capacity relates directly to the cited national security interest. However, the conditions relating to employment seem to reflect political considerations. If a recession occurs and U.S. Steel is unable to reduce its US workforce, which is a common practice among US steel manufacturers, that will impose additional challenges to the usual post-merger difficulties of integrating operations, systems, and culture.
Why did Nippon Steel persist in the transaction and agree to these unusual conditions, ultimately paying a price double that offered by an American competitor? Presumably its purchase of U.S. Steel was seen as essential to its corporate strategy of globalization. The deal makes it the second-largest steelmaker in the world, after China Baowu Steel Group Corp.
What bears watching now is whether the deal’s closure encourages greater foreign direct investment into the US by Japan and closer economic relations between the two countries.
What bears watching now is whether the deal’s closure encourages greater foreign direct investment (FDI) into the US by Japan and closer economic relations between the two countries. On the other hand, might the winding road to approval and the broad restrictive conditions give pause to Japanese investors? Will the deal inject new energy and optimism into the economic relationship, with Japan providing much-needed capital and managerial expertise to the US manufacturing sector, or will other Japanese investors be put off by the unpredictability and high price?
The U.S.-Asia Law Institute (USALI) has been following the proposed transaction for some time. On Nov. 15, 2024, we held a public panel discussion (see the video recording at Nippon Steel, U.S. Steel, and the Implications for US-Japan Relations) followed by a private conversation with a small group of business executives, bankers, lawyers, and diplomats. We also invited written comments from leading American experts and prominent Japanese attorneys. The result is this symposium, which provides a broad range of perspectives--American and Japanese, academic and practical, legal and non-legal--on the implications for US-Japan economic relations. The essays were written at various stages of the US security review process and reflect evolving hopes and concerns. What follows is a summary of the discussion.
Background. Nippon Steel and U.S. Steel reached agreement on December 18, 2023, for Nippon Steel to purchase U.S. Steel with an all-cash bid of $14.1 billion plus $800 million assumption of debt. This price was roughly twice the previous offer by an American domestic rival, Cleveland-Cliffs Inc. About 98 percent of U.S. Steel’s voting shares approved the transaction in April 2024. Nippon Steel pledged from the outset to keep U.S. Steel’s name, US-based production, and Pittsburgh headquarters; to invest $1.4 billion in old plants (subsequently raised to $2.7 billion and ultimately to $14 billion); and to comply with existing labor contracts.
Meanwhile, the United Steelworkers and politicians from both parties expressed opposition to the purchase on the grounds of national security and the need to protect US jobs. The non-public national security review of the transaction reportedly resulted in divided views within the inter-agency Committee on Foreign Investment in the United States (CFIUS), which eventually referred the matter to Biden in late 2024 without making any recommendation. Biden issued an executive order in early January 2025 blocking the transaction, and Nippon Steel and U.S. Steel quickly filed a lawsuit challenging that decision.
Upon taking office just weeks later, Trump publicly suggested that while outright ownership of U.S. Steel by a foreign corporation would be problematic, an investment might be welcome. He referred the matter back to CFIUS for a de novo review. CFIUS submitted its recommendation from that second review on May 21. Nippon Steel seems to have dramatically increased its commitment to make additional investments before the May 21 deadline, in a last-ditch effort to obtain approval. The announcement from the White House conditionally approving the transaction followed on June 13. (see Timeline.)
Two Opposing Views of Implications for US-Japan Relations. From the beginning, there were two contrasting views on the possible fallout if the transaction were blocked. One view, held by many Americans, was that this was an unusual case without wider implications. It did not represent a change in US policy, which continues to welcome FDI from Japan. An opposing view, popular in the Japanese media, was that the case raised serious questions about how the US perceives Japan. Why should Japan, America’s closest strategic ally in Asia, be treated like China, America’s greatest strategic competitor?
The essays in this Symposium reflect both views. A synthesis of the two views might result in the following analysis. There is reason to doubt that any real US national security interest would be harmed by the transaction; rather, it was initially blocked primarily because of domestic politics and the symbolism of a foreign acquisition of an iconic American company (see Sheard essay). At the same time, evidence indicates that the national security concerns cited by CFIUS do not stem from Nippon Steel’s Japanese ownership (see Contardo essay), and therefore the chilling effect on US-Japan economic relations should be limited (see Umezu and Takiguchi essay).
Nonetheless, actions have consequences, and Biden’s executive order has already affected the perceived risk and likely terms for Japanese acquisitions of US companies in the future (see Bito and Iwakura essay). We were left considering how it might still be possible to produce a positive resolution of this proposed transaction that would benefit both countries (see McDermott essay).
National Security vs. National Interest. Strong concerns remain about the initial blocking of the proposed transaction -- the first ever blocked involving a company from an allied country -- and the definition of “national security.” Skeptics point out that the proposed transaction involves no critical technology or strategic competitor, such as China. Accordingly, any national security concerns should be addressable through mitigation measures that would normally be negotiated with the US government in a collaborative process (as ultimately occurred). The initial failure to engage in any such negotiation under Biden indicates to many that the meaning of national security has been substantially expanded into a broad, ill-defined concept that includes employment impacts, political considerations, and even the symbolism of a traditional manufacturing company. I argue that this may be a global trend, and as such it may have adverse effects on global investment (more on that below).
The meaning of national security has been substantially expanded into a broad, ill-defined concept that includes employment impacts, political considerations, and even the symbolism of a traditional manufacturing company.
At the same time, although CFIUS’ deliberations and correspondence are confidential, portions of it were attached by the plaintiffs in their lawsuit challenging Biden’s decision to block the transaction. From that correspondence, it is clear that the initial CFIUS review did not consider the Japanese nationality of Nippon Steel. Therefore, at the very least, Biden’s decision to block the deal should not in theory have an impact on the important security relationship between the US and Japan (Contardo). CFIUS appeared to focus on the importance of having a US domestic steel industry and how the commercial interests of a foreign acquirer might diverge from US national security interests. While this analysis may be unpersuasive to some, it is worth noting that in April 2025 the British government controversially assumed broad powers over its similarly iconic but failing steelmaker, British Steel, in order to prevent its Chinese owner from shutting down the country’s last remaining blast furnace and ending domestic production of primary steel.
Actual and Possible Consequences. Our authors report that a number of consequences from the whole episode are already manifesting. Some are exacerbated by the Trump administration’s unexpectedly high tariffs and scheduled “reciprocal” tariffs imposed on Japan in April 2025.
1. Technology export controls and trade with China. If Japan perceives that the US is acting in its broad economic interests rather than on traditional national security grounds, Japan may also assert its own economic interests more aggressively. For example, despite some recent supply chain diversification, trade and investment with China remains as important to Japan as its economic relationship with the US. US subsidiaries of Japanese companies are directly and legally bound by US regulations. However, if the Japanese government recalibrates its interests, it could become more reluctant to enforce US restrictions on exports to China against its own companies. Japan (and several other Asian countries such as South Korea) also may become more resistant to joining the US in a trade war against China.
2. Japanese FDI into the US. Japan is the largest foreign investor into the US. Although there is no ready substitute for the US market as Japanese companies continue to expand outside of their aging and shrinking domestic market (Umezu and Takiguchi), US messaging is mixed and can add uncertainty. Assuming the aggressive US tariff policy is intended, in large part, to encourage onshoring through investment in domestic plants, blocking Nippon Steel’s acquisition of US Steel seems both contradictory and puzzling.
As a result, Japanese investors already associate investing in the US with heightened risk and greater costs. Because US government approval of FDI now appears less certain, contractual fees that Japanese companies must pay for failed takeovers of US corporations are expected to increase, which could in turn deter FDI into the US. Nippon Steel itself would have owed US Steel some $565 million for a “reverse breakup fee” if the transaction did not close. (Bito and Iwakura)
3. Global trend of economic nationalism. For decades the US has been the international model for successfully balancing national security interests against the benefits of FDI. But the decision in this case, which may be perceived as prioritizing broader, politicized “national interests” over traditional national security interests, will likely accelerate the emerging global trend toward more stringent regulation of FDI. Japan, for example, has recently strengthened its own economic security regulations and procedures with respect to FDI, although the changes are aimed primarily at China rather than at the US. (Umezu and Takiguchi). Increased investment uncertainty and reduced investment globally would be a blow to US businesses, which lead the world in overseas investment.
Considering a Positive Resolution. The benefits of Japanese FDI into the US are not only financial, but also include gaining Japanese manufacturing technology and expert management. (Sheard, McDermott). Given Nippon Steel’s 100 percent ownership and the high cost of the transaction, it has strong incentivizes to inject its technology and management capabilities into U.S. Steel to improve performance of US operations.
Despite this positive result, the broader implications of this transaction have yet to emerge. As noted above, initially American voices sought to reassure Japanese investors that this transaction did not represent a change in a US policy that welcomed Japanese investment. But having now seen the idiosyncracies of the process under both Biden and Trump and the unusually broad conditions ultimately placed on the acquisition, the wider impact remains unclear. Will the next significant investment proposed by a Japanese company face similar difficulties? Was Nippon Steel’s investment finally approved simply because it kept raising the amount of additional investment and accepted significant conditions to the point where it became a “great deal” for the US that was too good to pass up? Or has there, in fact, been a reconsideration of the contributions that Japan can make toward reviving US manufacturing and rebuilding its infrastructure?
Similarly, in terms of broader US-Japan economic relations, will approval of Nippon Steel’s investment serve as a stepping stone to a broader arrangement that satisfactorily resolves pending tariff issues and encourages Japanese FDI into the US to aid domestic manufacturing, thus reaffirming the strong traditional relationship between the two countries? Or will it instead be seen as an expensive and restrictive one-off deal that gives pause to Japanese investment in the US and provides no impetus to help resolve broader issues such as tariffs, thus marking the beginning of a stagnation or decline in economic relations between the US and Japan?
My own hope is that shared economic interests, strategic concerns relating to China, and democratic values, as well as our long recent history of cooperation will enable the US and Japan to build on this investment, and that this transaction will constitute the first step in reaffirming their close relationship. At a minimum, the door has now opened to a major investment that could anchor a renewed commitment on both sides to close cooperation.
Suggested citation:
Bruce Aronson, “Overview,” USALI East-West Studies, 3, No. 1, July 8, 2025, https://usali.org/nippon-steel/symposium-overview.
The views expressed in USALI Perspectives essays are those of the authors, and do not represent those of USALI or NYU.
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