It reflects concerns unique to Nippon Steel

By Christian Contardo

President Joe Biden’s decision to block Nippon Steel’s proposed acquisition of U.S. Steel was criticized as a bid for union support in an election year. Based on information that has come out in subsequent litigation, we now know that the committee charged with reviewing the transaction did identify national security concerns. These concerns were rooted not in Nippon Steel’s Japanese identity but in factors unique to the global steel market and Nippon Steel. This shows that the decision does not indicate a lack of US government trust in Japan as a national security partner. As a result, the episode should not impair the larger US-Japan diplomatic, economic, and security relationship.

The United States and Japan share a long national security alliance dating from the 1951 United States-Japan Security Treaty. During the Cold War, the two countries’ national security interests grew closer, including mutual defense obligations and the establishment of US military bases in Japan. Currently, approximately 50,000 US military personnel are stationed in Japan. As new common threats have emerged post-Cold War, the US and Japan continue to cooperate closely.

Concurrently, the US and Japanese defense industrial bases have increasingly collaborated. Japan imports nearly all its defense products and technology from the US government and US defense contractors, including advanced weapons systems such as fighter aircraft, missiles, and unmanned aerial vehicles. The US and Japanese governments foster further cooperation to better align US-Japan economic and technology development and to improve their respective industrial bases. For example, in 2024, the US and Japanese governments established a forum on Defense Industrial Cooperation, Acquisition and Sustainment to better integrate their respective defense industries, policies, acquisition, and development strategies. In other areas, the US and Japan seek to coordinate their national security postures, including considerations to add Japan to an initiative with Australia and the United Kingdom to share defense sector resources and support further partnership and technology innovation.

The decision does not indicate a lack of US government trust in Japan as a national security partner.

The inability of the inter-agency Committee on Foreign Investment in the United States (CFIUS) to clear Nippon Steel’s planned purchase of U.S. Steel, and Biden’s subsequent decision to block the transaction, do not represent a change in this longstanding and vital national security partnership. Rather, the outcome should be seen for what it is: a particular case based on a specific set of facts that does not imply any US national security concerns with Japanese nationals.

CFIUS evaluates national security risks by looking at individual transactions on a case-by-case basis, regardless of the nationality of the foreign investor. While investors from close allies, like Japan, may give CFIUS more comfort that an investment is less likely to raise national security risks, a buyer’s nationality is not conclusive. CFIUS frequently reviews transactions involving companies organized in countries that are close allies of the United States. It is notable that this is the first time a president has blocked a transaction where the foreign buyer is such a company, but the decision to block the transaction did not rely on Nippon Steel’s Japanese nationality.

Nippon Steel and U.S. Steel contested Biden’s decision in a lawsuit filed with the US Court of Appeals for the District of Columbia on January 6, 2025. The companies included correspondence received from CFIUS as exhibits to their petition for review. In this correspondence, CFIUS did not appear concerned with Nippon Steel’s Japanese nationality. Rather, it focused primarily on the national security importance and vulnerabilities of an independent domestic steel industry, and the risk that the potential divergence of Nippon Steel’s commercial interests from US national security priorities could undermine the US domestic steel supply chain. CFIUS determined that the US domestic steel industry is a vital national security supply chain, in part due to its importance to downstream critical infrastructure and industries. In arriving at this determination, CFIUS considered how a foreign acquirer could negatively affect the resiliency of the domestic steel industry.

CFIUS considered factors unique to Nippon Steel, including: the bulk of Nippon Steel’s operations and future growth opportunities being located outside the United States.

In its analysis, as explained in the correspondence, CFIUS considered factors unique to Nippon Steel, including: the bulk of Nippon Steel’s operations and future growth opportunities being located outside the United States; its history of being found to have dumped steel in the US market; and skepticism that a Nippon Steel-controlled U.S. Steel would continue to vigorously defend US trade remedy cases. CFIUS expressed concern that Nippon Steel’s global operations and commercial interests likely would diverge over the long term from US domestic interests and lead to a reduction in total US steel production capacity. As a result, CFIUS found that the transaction could degrade domestic steel supply and undermine the US steel industry, thereby posing risk to critical industries downstream that rely on steel production.

CFIUS did not indicate any significant concerns regarding Nippon Steel as a Japanese company. CFIUS also noted that Japan is a critical ally of the United States and that the committee considered in its review the two countries’ national security alliance and Japan’s status as a vital trade and investment partner. CFIUS concluded that Nippon Steel’s divergent commercial interests as a global corporation resulted in the national security threat to the US steel industry. Because it was unable to reach consensus as to whether this national security risk could be mitigated, pursuant to the CFIUS regulations, the committee referred the matter to the president for a decision.

The lawsuit by Nippon Steel and U.S. Steel — which claims that the government violated their due process rights by deciding to block the transaction for political reasons ahead of the national security review — will take months to get to trial. Meanwhile, in early February, President Donald Trump proposed that Nippon Steel consider a non-controlling investment in U.S. Steel in lieu of the acquisition and implied that the company had already agreed to that course. The president of Nippon Steel, however, still talks publicly about finding a way to revive the purchase.

The United States has frequently recognized the importance of “friend-shoring” and increasing reliance on close allies to secure vital supply chains. However, the United States also has maintained that certain foreign investment could undermine US supply chains, and as a result may need to remain under US control. Such risk does not require that a foreign buyer be a national of a US adversary. The proposal that Nippon Steel make a non-controlling investment in U.S. Steel could address this concern while still benefiting both parties’ commercial interests. Regardless, the decision should not reflect a diminishment of the US and Japan’s national security relationship.

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Christian Contardo is an attorney who advises clients on a variety of national security and global trade matters. The views expressed here are his own.

Suggested citation:

Christian Contardo, “The Nippon Steel Decision Is not About Japan,” USALI Perspectives, 5, No. 8, March 10, 2025, https://usali.org/usali-perspectives-blog/the-nippon-steel-decision-is-not-about-japan.

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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