Biden's block on US Steel buyout could test ties with key ally Japan

Executives say the deal's failure would also raise serious questions about whether the company can remain in its longtime Pittsburgh headquarters.

In Japan, where the winner of the ruling Liberal Democratic Party's leadership race this month will become the next prime minister, Biden's plans to block the acquisition have been described in the media as unsustainable and an insult to a close ally, Kingston said.

Shigeru Ishiba, a former defense minister and front-runner in the LDP leadership race, told Reuters last week that what the United States was saying about Nippon Steel was very troubling and could undermine the trust of its allies.

Another candidate, Digital Affairs Minister Taro Kono, said he never imagined the takeover would raise national security concerns, and would raise the issue with the White House if he became prime minister.

Rahm Emanuel, the U.S. ambassador to Japan, said the relationship between the two countries was deeper, richer and stronger than any commercial transaction.

The failure of the US Steel acquisition would be a blow to the expansion plans of Nippon Steel, Japan's largest steelmaker, which is focusing on investments in the United States and India after pulling out of a joint venture in China that lasted nearly 50 years.

The Japan Business Federation, the country's largest business group, said companies were following the U.S. review process with keen interest, especially those considering investing in the United States.

“I very much hope that this issue will not be influenced by the U.S. presidential election and will be handled based on a fair and just procedure,” the group's chairman, Masakazu Tokura, told reporters in Tokyo on Monday.

Japan's top government spokesman declined to comment last week on reports that Biden would block the deal because it involves the management of an individual company.

But spokesman Yoshimasa Hayashi added that expanding mutual investment between the United States and Japan and cooperation on economic security issues are essential for both sides.

Long Le, an associate professor at Santa Clara University's Leavey School of Business, said Biden's opposition to the deal signals a significant shift in U.S. policy on international trade, foreign direct investment and the extent to which the U.S. government is involved in the industry.

The Committee on Foreign Investment in the United States, a branch of the U.S. Treasury that reviews the national security implications of foreign acquisitions of U.S. companies, has never blocked a Japanese acquisition, Le said.

Biden is still defining what national security is, he said in a phone interview. And in this particular case, he is making it clearer than ever that no foreign acquisition can be made in a sector considered critical, even if it is from a U.S. ally.

Kingston said the hope in Japan was that this would not be the final word on the deal.

Perhaps Japan Inc. is hoping that once the dust settles after the election, common sense will prevail, he said.

Arata Yamamoto reported from Tokyo and Jennifer Jett from Hong Kong.

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