US-Japan summit becomes a lesson in dealing with a difficult partner

Washington’s resistance to Nippon Steel’s takeover of US Steel overshadows the important summit between the US and Japan. Other countries could learn from Japan’s dealings with its increasingly protectionist partner.

That happened: Being an ally of the United States is a difficult business. The USA’s closest ally, Japan, is currently experiencing this shortly before a summit meeting. When American President Joe Biden receives Japan’s Prime Minister Fumio Kishida on April 10th, it will be about significantly expanding the security alliance against China, Russia and North Korea. On the other hand, one of the largest acquisitions by a Japanese company in North America has become a pawn in the American election campaign.

In December, Nippon Steel, the world’s fourth largest steelmaker, announced that it would buy the American steelworks US Steel. But first Donald Trump announced that he would ban the purchase if re-elected. In March, Biden also said it was critical for the Pittsburgh steelmaker to remain a domestically owned and operated American steel company.

The astonishing thing about the affront is the calm Japanese reaction. The Japanese Cabinet Office chief, former Foreign Minister Yoshimasa Hayashi, said: “I will not comment on matters relating to individual companies.” He then emphasized that “the US-Japan alliance is stronger than ever” and that both countries would continue to work together for sustainable and inclusive economic growth in the Indo-Pacific region and for economic security.

That’s why it’s important: This means that a simple company purchase becomes a model for how US allies can deal with an increasingly protectionist Washington. Experts expect that Kishida will also not forcefully push for a course correction in the talks with Biden. Such reactions in the USA are by no means new, explains Asuka Tatebayashi, geopolitical analyst at the major Japanese bank Mizuho: “We are used to the effects of politics on our trade relationships.”

In the 1980s, Japan experienced a trade war with the United States. “And we had tensions with several governments,” recalls Tatebayashi, “but we were always able to maintain our close relationships, even under President Trump.” He also imposed tariffs on steel on Japan. But the security alliance is too important for Tokyo to let economic adversity spur politicians into open rebellion.

The calm contrasts with the criticism that Trump and Biden have received from staunch internationalists in the USA. The American Japan expert Tobias Harris says: “Biden’s statement is dismaying, especially for those who believe that closer economic ties between the USA and Japan are worthwhile in and of themselves.”

Even those who thought the deal was good business for US Steel were offended, Harris said. The deal makes business sense from the perspective of those involved. The weakening American company would find a strong partner who, firstly, would pay more for the investors’ shares than other American interested parties. Secondly, the US location could benefit from Japanese technology transfer.

Nippon Steel is trying to position itself internationally because Japan’s population is shrinking and the prospects for the domestic market have therefore deteriorated. At the same time, the group wants to strengthen its position in the USA and protect itself against the growing “Buy American” trend.

For Harris, how bad a company’s rejection of its closest Asian partner really is depends on the interpretation of the American president’s statement. One could see it as an all-too-familiar tendency for incumbent US presidents to turn to protectionism and economic nationalism in difficult election campaigns.

A second interpretation is more worrying for Harris: Biden’s statement could also be part of a pattern “that suggests that economic nationalism is now firmly entrenched in both the Democratic and Republican parties.”

This is how it continues: Japan relies on the time factor and calm, consistent lobbying. Because no one talks about shock. “The resistance was not really surprising given the timing before the presidential election in America,” says geopolitical strategist Tatebayashi.

After all, US Steel’s headquarters are in Pennsylvania, a battleground state that Biden narrowly won in the last election. With his resistance he now secured the support of the union.

In any case, the Japanese have noticed that the USA has increasingly protected certain sectors from foreign involvement in recent years. Tatebayashi says the screening of investments from Japan has also become much stricter.

As a countermeasure, the Japanese are relying on a tried and tested recipe. Takashi Imamura, the managing director of the economic research institute of the Marubeni trading house, writes in an online comment: “Our goal is to be a better US company than American companies, to create high-quality jobs and a lot of added value, to pay a lot of taxes and to make profits reinvest.” Over time, it would no longer matter whether a company was American or Japanese owned.

Nippon Steel maintains the pattern. Negotiator Takahiro Mori, Executive Vice President of the Japanese, recently promised: “Not only will we keep the headquarters in Pittsburgh – something other bidders would not be able to do – but we also plan to move Nippon Steel’s existing US headquarters from Houston to Pittsburgh .» That would be a costly commitment because taxes are lower in Texas than in Pennsylvania and unions are not widespread.

This is what we mean: The Japanese are apparently counting on the approval process to drag on until after the elections and for the election winner to then decide based on economic and not electoral criteria. The Japanese also trust Trump to change his mind.

Japanese companies appear to be well prepared for the possible second Trump administration. Internally, they increased the likelihood of his victory from maybe to likely, says analyst Tatebayashi.

Based on their experiences during their first term in office, this prospect does not yet frighten the Japanese. Japan was able to maintain very close relations with Trump in Trump’s first term compared to European countries.

There are also reservations in Japan about Trump’s rude manner and autocratic tendencies or Biden’s increasingly nationalistic industrial policy. But instead of publicly snubbing your partner, national security interests push such stomach pains into the background. The media also plays along and does not exaggerate disputes into bilateral crises, but rather analyzes and provides information soberly. With this realistic attitude, Japan could show other allies a way to deal with the USA: definitely tough on the matter, but always close in contact and quiet in tone.

By Editor

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