AFP, September 10 (Editor: Malan) Japan is one of America's closest allies and its biggest foreign investor. But more and more Japanese companies are beginning to doubt whether the Japan-US alliance is actually reliable.

Japan's largest business lobbying group said on Friday that Japanese companies, particularly those hoping to invest in the US, are closely monitoring Nippon Steel's deal to acquire American Steel and the US government's attitude towards the deal.

It also expressed its sincere hope that the US review process can be carried out in the most honest and fair manner in accordance with the law.

However, this kind of request, which is full of earnest feelings from the Japanese side, is unlikely to impress the US authorities.

Former US trade official David Boling bluntly commented that in the future, Nippon Steel's deal may be seen as a typical example of overseas companies not understanding US politics.

Core issues

US presidential candidate Trump and Harris rarely came to an agreement on one matter. Unfortunately, Nippon Steel became the “lucky guy.” Both have recently publicly stated their opposition to Nippon Steel's acquisition of American Steel.

What further suffocates Nippon Steel is that, according to media reports, the White House is also about to announce the blocking of Nippon Steel's 15 billion dollar deal to buy US steel because it will damage US steel production.

This reason is absurd, because in the review over the past few months, it doesn't seem to have appeared on the US side's list of concerns. At the beginning of August, when Nippon Steel first heard about this “risk” from the American Committee on Foreign Investment (CFIUS), it was hard not to wonder if it was hallucinating.

Until the communication meeting on August 19, Nippon Steel and American Steel naively thought that CFIUS had listened to their demands. Nippon Steel also continues to promise that it will continue to communicate with workers, increase local investment in the US, and refurbish America Steel's old equipment...

However, these two companies were soon severely punched in the face by reality. On August 31, CFIUS released a 17-page letter addressing its concerns about the acquisition.

Meanwhile, according to people familiar with the matter, a CFIUS official confessed privately that they were only instructed to carry out orders from their superiors. Another White House source warned that the White House is about to block the acquisition.

All of this is due to the political game of the unions behind American Steel. Since the American Federation of Steelworkers (USW) has a large number of voting rights in the key swing state of Pennsylvania, and Pennsylvania is also the key to winning or losing this election, both Trump and Harris have to surrender to the union.

The Pennsylvania guys get the White House. In the current tense presidential campaign, there is no point in delaying the takeover; the White House may be the only way to save Harris. This made the struggles of Nippon Steel and American Steel very sad.

A careless performance

Almost everyone knows that the US government blocked Nippon Steel's deal for political reasons, but in this drama, Nippon Steel and American Steel had to hold back and fight tenaciously.

In a letter issued by CFIUS, it stated that CFIUS has always regarded Japan as an important ally of the United States and only said no to this acquisition out of consideration of the national security of the two countries. The agency also said it is concerned that Nippon Steel will transfer US steel production to India and that Nippon Steel will use US trade remedy measures.

CFIUS asked Nippon Steel and American Steel to respond to the agency's 17-page concerns within 5 days. Nippon Steel's representative attorney couldn't hold back his temper on the spot and asked why they only responded in such a short period of time.

However, CFIUS sincerely emphasized that in just five days, the two companies could only work hard and write 100 pages of documents to correct CFIUS factual errors and try to salvage the deal.

The two companies responded that the US-Japan agreement made it clear that Nippon Steel would not pose a risk to the US industry; Nippon Steel's expansion in India and Nippon Steel's acquisition of American Steel are two separate business plans; Nippon Steel has never used trade remedy measures; if the US is unconvinced, it can set up an internal trade committee to rule out Nippon Steel's interference...

In response, Nippon Steel stated inexplicably that in the past 10 years, CFIUS has never blocked the acquisition of a Japanese company; why has the attitude changed this time?

This made both parties very unhappy. People who ask questions are racking their brains to find reasons, but they don't actually expect to hear any answers. The people who answered the question couldn't help but put a tight spell on themselves as a sign of piety, but the real Buddha was hidden behind it, which appealed to everyone.

Obsessed with mispayment

William Chou, an expert on Japan at the Washington Conservative Hudson Institute, said that Japan's latest perception is that although the US is willing to cooperate with Japan on key economic security issues in the semiconductor field, the US does not want to provide Japan with any mutually beneficial conditions in terms of foreign investment.

According to Dealogic data, Japan's overseas mergers and acquisitions with the US increased by nearly 160% this year, reaching 32.1 billion US dollars, accounting for 71.4% of Japan's total overseas M&A transactions, nearly double that of the same period last year.

However, this trend is being frozen by the Nippon Steel incident. A Tokyo-based banker said that today's buyers and sellers are beginning to spend more time analyzing political trends and scrutinizing whether trading goals may trigger intervention by national forces.

Another M&A industry insider also said that if the Nippon Steel deal fails, breakups will increase, and buyers will also become more cautious.

Marc Busch, a researcher at the Georgetown University McDonough School of Business at the Balata Global Business Research Center, said that Japan and other allies may have learned through the Nippon Steel deal that Washington is only playing with protectionist politics; the so-called allies are nothing but a lie.

Compared to the shock and unease of the Japanese political and business community, many US foreign policy experts and some government officials privately mocked the White House's statement, especially when the White House once again emphasized that Japan is America's most important ally in India and the Pacific.

Michael Leiter, head of CFIUS and national security business at Skadden Law Firm, admits that considering the past records of the US-Japan Alliance, Nippon Steel, and the current weaknesses of the US steel industry, it is difficult for the US government to actually find any national security risks, but it is much easier to determine political risks. Unfortunately, the latter calculation dominates the whole question.

Deborah Elms, head of trade policy at the Hinrich Foundation, warned that if it is proven that the US has not actually placed Japan on its “family and friends list,” Japan may not cooperate with the US in imposing semiconductor trade restrictions on other countries.

After all, it's worth putting two sides of the wheel for a friend, but if a friend were to get it both ways, it wouldn't be easy for Japan to accept it with a smile.