The Nippon Steel Deal, Taking Another Look

"Countries have no friends….just interests" ー or so goes the paraphrased version of Lord Palmerston's statement. That was so cynical — so 19th Century British Empire. But 170 years later, try buying another nation's steel company and you might think Lord Palmerston was right. 

Japan's largest steel company, Nippon Steel, wants to acquire US Steel. Many decades ago, it was a veritable symbol of American industrial might and technological prowess. But less so these days.

United States President Joe Biden says he opposes the deal. That was only two months after his latest love-fest with Japanese Prime Minister Fumio Kishida, touting the strength of the Japan-US alliance: Rock solid and based on shared mutual values.

The decision to approve or reject the deal has been pushed back until after the November election.

Former President Donald Trump is also against the deal, as is Vice Presidential candidate, Senator JD Vance.

One might get the impression from the rhetoric that the end of the republic is nigh if foreigners get their hands on US Steel. 

The main reason given is national security.

Is There a National Security Issue?

It's prudent that a country closely watches its key industries ー and who owns them. But maybe the biggest issue with the US Steel deal is that it's embarrassing. 

People are nothing if not tribal. And who doesn't want the home team to succeed ー and on its own? 

It's also an embarrassing reminder that America's business and political elites tossed away the country's manufacturing dominance over the last five decades - shipping much of it overseas.

But a little embarrassment is sometimes useful if it helps you improve.

And this is a deal where swallowing one's pride is worth it.

'Not Unprecedented'

For one thing, the Japanese are our friends. And Nippon Steel's proposal is not unprecedented.

Mitsubishi UFJ Financial Group (MUFG) wrote a $9 billion USD check to save Morgan Stanley, the American financial icon and a key player in global capital markets. That was in 2008 when it was within hours of collapse. 

Morgan Stanley got a new lease on life. The Japanese got a good investment while becoming the bank's largest shareholder. And it has worked out well for both sides. Nowadays nobody even knows Morgan Stanley is Japanese-owned.

The Japanese, in effect, did this as a favor for the Americans. They could have let the Wall Street firm collapse owing to the irresponsibility of their own making ー and stepped in to profit. They didn't.

But does letting foreign entities own a US company put us at risk? 

That depends on which foreigners and the particular deal. 

In this case, Japan is a longtime ally ー and an excellent partner. Also, the deal benefits both nations. 

A Deal That Creates Jobs in the US

Japan's existence as an independent country depends on the United States and the US military. 

And Tokyo knows that very well. 

A weak America is dangerous for Japan.

Investing in US Steel and modernizing it will create great-paying jobs in the US. But more importantly, it will secure a strategic asset the United States has neglected that serves as an insurance policy for the survival of Japan. 

Opponents haven't produced a believable scenario where Nippon Steel would (or could) shut down US steel production. Or where it could create any political brouhaha that would endanger the essential US-Japan relationship and defense coverage.

As importantly, Japanese investment has been good for the nation. 

Manufacturing Jobs From Japan

Toyota, Nissan, and Honda are just the most well-known Japanese companies in America. Moreover, they support over 450,000 manufacturing jobs in the United States. 

Japan is the leading overall foreign investor in the United States ー to include huge research and development operations.

The litmus test: Americans want to work for Japanese companies. And union organizers have a tough time convincing them they are unhappy.

Does anyone remember the 1980s when Japan and its companies were demonized on Capitol Hill and elsewhere? We were all destined to become Japan's slaves as it destroyed and took over our economy – and our country. 

Not hardly.

But this sounds like what's being said will happen to American workers if Nippon Steel takes over US Steel. Lose jobs, pensions, everything. 

Less publicized is that actual US Steel employees support Nippon Steel's investment in modernizing their operations, and making it a stronger company.

China Ties?

Listen to deal opponents and one would think Nippon Steel is conspiring with the People's Republic of China to destroy a US company.

Like many other companies, Nippon Steel has business dealings in the PRC. 

These should be carefully and accurately assessed for real security risks. And not shaded to keep the United Steelworkers union bosses happy.

If necessary, Nippon Steel should be required to modify or even end any China operations. 

And so should Boeing, General Electric, Ford, GM, Tesla, Honeywell, and the hundreds of other American companies in the China market. They have done far more than Nippon Steel to build up the Chinese economy and the People's Liberation Army over the last four decades.

Remember the Chinese spy balloon that flew over America in 2023? You may have noticed the Biden administration won't release a report on what it found. A likely reason is that the balloon's innards had American components. 

Is Racism a Part of Opposition to the Deal?

Probably.

One doubts we'd be having this debate if a British company was trying to buy US Steel. 

Does anybody care that Chrysler is owned by the Italians and the French? 

Also, there is an air of "Yellow peril" in some of the commentary.

However, the racism angle is a wash in this case.

Look back a few years ago to when it appeared Renault would take over Nissan. Company executives and Japanese government officials effectively took Nissan Chairman Carlos Ghosn hostage via charges of corporate misconduct. Furthermore, along with him, they arrested a senior executive, Greg Kelly, an American.

Both the US and Japan need to remember they are friends and avoid dredging up resentments. They need to stay focused on defending themselves.

Use the Japanese to Help Make US Steel Great Again?

This won't be the first time.

American automakers in the 1970s and 1980s were losing billions and turning out shoddy cars nobody wanted to buy. Just look up "K-Car" on the internet. The Japanese in effect forced Detroit to get its act together.

Furthermore, Japan backed off and gave the American carmakers the breathing space to get their acts together.

Was that embarrassing? Sure. Infuriating? Sometimes. And some Japanese gloating was sometimes too much.

But it worked out pretty well for everyone.

Damage Done?

Don't think Japan isn't irked by Nippon Steel's treatment. Japan has always been insecure about the American commitment.

Tokyo won't be mollified by the line, "This is just business" or "This is just politics."

Japan might fairly wonder how reliable an ally is the US. 

And one day when the Chinese get rough with Japan, maybe a US administration will decide it just can't defend Japan. Nothing personal, and we still love you. But an election is coming up or (fill in the blank).

The alliance won't collapse if the Nippon Steel deal is turned down. But it will leave a scar, instead of deepening and strengthening the US-Japan relationship.

The writer's grandfather, Michal Hlohinecz, was a miner in one of the US Steel coal mines many years ago. What would he think about all this? I have no idea. But he might have taken some offense at the idea that "foreigners" are the problem.

And in the case of the Nippon Steel deal, the Japanese are not the problem.

RELATED:

• Experts Say Nippon Steel Deal Has No Security Risk
• The Evolution of Nippon Steel and Where It's Headed
• KISHIDA Fumio: 'For the Future: Our Global Partnership'
  
  

Author: Grant Newsham
Grant Newsham is a retired US Marine officer and former US diplomat. He is the author of the book "When China Attacks: A Warning To America."