Nippon Steel’s bid for American steel: national security concerns or political grandstanding?

When Japan’s Nippon Steel announced its $15 billion bid to acquire US Steel, it was hailed as a potential game changer – a partnership that could revitalize the US steel giant and create a formidable force to challenge Chinese dominance to challenge the global market. But instead of being seen as a strategic victory, the deal has been mired in political debate, with national security concerns being used as a rallying cry.

Are these concerns rooted in reality, or is this just political theater?

Nippon Steel’s proposal to merge with US Steel is not just a corporate transaction; it is a strategic move in a high-stakes geopolitical game. China, which produces more than half the world’s steel, has significant market power, leaving Western competitors struggling to keep up. The merger provides an opportunity to strengthen Western steel production and counterbalance Chinese influence through technological advances and the modernization of U.S. steel mills.

Imagine a struggling US Steel facility being outfitted with state-of-the-art upgrades. With billions in investments, the combined entity could increase productivity, increase manufacturing employment in the United States and become a powerful global competitor.

This partnership is an opportunity to future-proof the U.S. steel industry, enhance domestic economic security while supporting the global supply chain – an important step toward reducing the Western bloc’s dependence on China.

National security has become the most important and emotional argument against the merger, but in this case that is exaggerated. Far from posing a risk, Japan is a crucial ally of the US – politically, economically and militarily. Portraying Japan’s role in the proposed merger as a threat to national security ignores decades of trusted partnership and shared global interests and misses the forest for the trees.

Instead, this deal strengthens ties between the US and Japan. By investing in steel production in the United States, Nippon Steel contributes to U.S. economic resilience, supports supply chain security, and enhances Western manufacturing capabilities. Rather than viewing this acquisition as a risk, it should be viewed as an opportunity to build a strong bridge that further strengthens the Japan-US alliance against shared strategic challenges, especially from China.

Yet the Committee on Foreign Investment in the United States (CFIUS) has found itself at the center of this debate. Historically, CFIUS reviews have focused exclusively on transactions with clear national security implications, such as the protection of defense infrastructure or advanced technology. However, the investigation into Nippon Steel’s mergers has become intertwined with electoral politics, especially in swing states like Pennsylvania, where US Steel is based.

Political leaders, labor unions and swing-state interests have escalated concerns about the labor market and job security to “national security” concerns, with leaders vowing to keep US Steel “Americanly owned and operated.” While unions have legitimate concerns about the impact of the merger on workers, these issues should be addressed through negotiations, not by rejecting the deal outright. Politicizing CFIUS threatens to undermine its original purpose as a neutral body and creates an unstable environment for international business partnerships.

The proposed merger is in line with the concept of ‘friendshoring’ – the new buzzword in international economics – building secure supply chains between trusted allies to reduce dependence on geopolitical rivals such as India and China. The United States has emphasized the need to work with partners like Japan to strengthen economic ties and support mutual interests. However, if the US blocks the merger, it will send a protectionist signal that could harm these efforts and discourage future foreign investment from allies.

By rejecting Nippon Steel’s offer, Washington risks encouraging reciprocal protectionist measures by other countries, hurting American businesses and investments abroad. Friendshoring only works if the United States shows a willingness to cooperate on mutually beneficial economic opportunities, and not by blocking allies’ investment efforts on dubious grounds.

As the politics play out, it’s important to remember that US Steel is struggling. Nippon Steel’s offer represents an opportunity to revitalize steel production in the United States through significant investments, technology upgrades and modernized operations. This merger is about growth, efficiency and securing long-term stability for the industry. It aligns with U.S. economic interests by protecting jobs, improving factory operations, and supporting environmental and productivity standards.

In an era when strategic economic decisions require a focus on long-term growth and stability over short-term political calculations, the proposed merger between Nippon Steel and US Steel is not just about dollars and corporate control; it is about strengthening alliances, strengthening the Western manufacturing base and creating a competitive advantage over China.

Rejecting this agreement on unfounded security grounds would not only harm the revival of the steel industry, but also undermine the principles of economic cooperation and trust that are essential to global partnerships. To ensure U.S. economic resilience, the focus must be on taking advantage of opportunities that advance shared interests and strengthen ties with reliable allies like Japan.

With the US presidential elections just around the corner, it remains to be seen how the outcome will influence the decision on this merger. If, as polls currently suggest, Vice President Kamala Harris wins the election, there is hope that she will take a fresh look at the deal and reconsider President Joe Biden’s position, prioritizing strategic alliances and economic pragmatism over protectionist sentiment.