You have to break a few eggs to make an omelet. Apparently, you also have to throw a few businesses under the bus to win an election.
President Joe Biden just threw US Steel, and its potential acquirer, Nippon Steel, under the bus in the hopes of gaining support before November.
In a statement released by the White House, Biden claimed that “it is vital for [US Steel] to remain an American steel company that is domestically owned and operated,” implying that the president plans to block the acquisition.
This statement comes just one month before Japanese Prime Minister Fumio Kishida is to visit the White House for a state visit.
Normally, the government blocks foreign investments in the United States for reasons of national security, not because the president doesn’t like the idea of a foreigner owning an American company.
When Nippon Steel announced the acquisition last December, there were no apparent threats to US national security from the deal. Nippon Steel agreed to pay a premium for US Steel stock and would even maintain US Steel’s headquarters in Pennsylvania. But the deal still had to go through the formalities of a national security review by federal agencies.
Unfortunately for US Steel and Nippon Steel, this deal was doomed to become political. It intersects some of the most politically sensitive issues in America—the steel industry, union jobs, and foreign takeovers—all in an election year.
Even Biden’s opponent, former President Donald Trump, has come out against the deal. But Trump is running a campaign, not sitting in the White House. Trump can say he would take actions without facing their material consequences.
During his first term as president, Trump blocked plenty of foreign investments. But he also waited for these investments to go through the federal review first, known as the Committee on Foreign Investment in the United States (CFIUS) process. He never undermined the CFIUS process by going around it.
Is questionable whether killing this deal will have any positive impact on Biden’s reelection. Even if he wins, the act of circumventing CFIUS may discourage foreign investment in the US for the next several years—undermining his administration’s work to secure supply chains and build trust with partners and allies.
Foreign investors may not want to bother with an investment review process if they think the president will ignore it. Instead, they may take their money to Mexico or Southeast Asia, increasingly popular destinations for investment.
In particular, Biden risks alienating Japanese investors—some of America’s most important foreign partners. Japanese direct investment in the US is worth over $775 billion. Japanese investors own $2.5 trillion in US debt, including $1.1 trillion in US government debt.
Politics creates uncertainty and uncertainty is bad for investment. Japanese businesses and investors have a lot of faith in the US economy. But waves of visitors from Japan are coming to Washington to try to figure out how the election will impact US economic and security policies next year.
Prime Minister Kishida is one of those visitors.
In addition to visiting the White House, Kishida has been invited to address a joint meeting of Congress.
During his time in Washington, the prime minister’s message may include how the US-Japan alliance is not one to be taken for granted as it’s the most important deterrence against an increasingly belligerent China in the Indo-Pacific region.
Likewise, hopefully Kishida can take home faith that America’s alliance with Japan is more important than the fate of one company—that political opposition to the steel deal stems from deep-seeded protectionism and not discrimination against Japan. It is in everyone’s interest that the US-Japan economic partnership can swiftly move past this incident.