Looking Past Nippon Steel: Japanese Businesses Choose Caution

By Hideaki Roy Umetsu and Kohei Takiguchi

Hideaki Roy Umetsu is managing partner of the New York office of the law firm Mori Hamada & Matsumoto. Kohei Takiguchi is a senior associate. They wrote this essay while the fate of the transaction remained uncertain and confirm that the closing does not alter their analysis.

It is indisputable that President Biden’s order to block Nippon Steel’s acquisition of U.S. Steel has undermined Japanese businesses’ confidence in the American investment review process. In the wake of the presidential order, Japanese corporate leaders voiced both disappointment and distrust, particularly given their conviction that Japan—as the largest foreign investor in the United States—has made significant contributions to the US economy and job creation. There are now concerns that, absent a comprehensive explanation of how and why the proposed Japanese acquisition may be a threat to US national security, Japanese investors may no longer perceive the US market as fair and open, and may hesitate to invest further.

Even prior to Biden’s order, the processes of the Committee on Foreign Investment in the United States (CFIUS) for evaluating the national security implications of the Nippon Steel acquisition had become increasingly protracted, unpredictable, and susceptible to political dynamics. As a result, Japanese companies have begun to more carefully assess the risk of CFIUS intervention and tailor their investment strategies accordingly, even in transactions that would traditionally be considered low-risk.

Given that notifying CFIUS before a transaction is largely voluntary, one potential repercussion is that Japanese investors may seek to avoid the uncertainty associated with voluntary filings, particularly when the transaction involves a business of relatively low sensitivity. They may choose to proceed without formal approval, leaving the transaction subject to potential future review by CFIUS.

Nevertheless, when viewed within a broader geopolitical context, it does not necessarily follow that Japanese investors will immediately withdraw from the US market. Several factors are likely to limit the chilling effect of the Nippon Steel affair. First, the United States remains the most critical market for Japanese businesses. Second, many may view the case as an unfortunate anomaly, attributable to a unique confluence of circumstances: Nippon Steel sought to acquire an iconic American company, one that even has “US” in its name, during a presidential election year, and the target had significant operations in politically sensitive swing states.

Broader policies are still unfolding that may reshape Japan-US economic relations more profoundly than any single transaction.

In addition, broader policy changes are still unfolding that may reshape Japan-US economic relations more profoundly than any single transaction. These arise from the intensifying rivalry between the US and China, on the one hand, and the Trump administration’s confrontational stance toward allies, on the other hand.

China is a vital market for Japanese businesses. The 25 percent tariffs on steel, aluminum and automobiles, and the 24 percent “reciprocal” tariff that President Trump announced on Japanese goods in early April – if not substantially negotiated down – may drive some Japanese businesses to strengthen ties with China, which is already Japan’s leading trade partner. The Japanese government may also become more reluctant to align with future US restrictions on semiconductor exports to China than it was under the Biden administration.

But both impulses will quickly face limits. China’s opaque political and economic systems continue to raise concerns, particularly risks of technology and data leakage and excessive competition from state-subsidized overcapacity. Japanese businesses also remain acutely aware of the potential for Chinese military action against Taiwan, which would directly disrupt their operations and threaten employee safety.

Japanese businesses are closely monitoring the new US administration’s policies and assessing how to adapt. In response to President Trump’s tariff policies, Japanese manufacturers are considering establishing new supply chains within the United States to mitigate adverse effects. The prospect of pro-business policies, such as deregulation and tax reductions, could spur increased corporate activity. President Trump’s “America First” investment policy has, at times, celebrated the benefits of foreign investments and promised to promote investments by allied nations.

Japanese businesses are closely monitoring the new US administration’s policies and assessing how to adapt.

Even the Nippon Steel decision may be subject to reconsideration. President Trump has directed CFIUS to conduct a de novo review of the proposed transaction. While President Trump has opposed Nippon Steel’s majority acquisition of U.S. Steel, he has expressed openness to a minority investment. Nippon Steel’s legal challenge is currently in abeyance upon the government’s motion, to which the transaction parties consented. Negotiations with the new administration reportedly continue, potentially reviving the deal as a full acquisition. Thus, the change in administration clearly and dynamically influences Japanese business leaders’ decision-making.

Turning to Japan’s attitude toward American investment, it is unlikely that Japanese authorities will tighten foreign direct investment (FDI) screening against American investors in retaliation for the Nippon Steel decision. Japan’s FDI regime is generally more bureaucratic and less aggressively enforced than the CFIUS process. To date, there has been only one official prohibition of a proposed transaction, although it is not uncommon for certain deals to be voluntarily withdrawn following formal or informal discussions with authorities.

Given Japan’s aging and declining population, the economy will increasingly depend on foreign investments. The government has implemented measures to promote incoming investment, aiming to stimulate innovation, reinforce supply chains, invigorate local economies, and enhance corporate governance.

Of course, the government seeks to balance openness with national security. A recently published proposed amendment to the FDI regulations would enhance scrutiny of Chinese investments. Under the proposed amendment, foreign investors would have to meet additional requirements to qualify for exemptions to mandatory pre-closing notification, particularly if foreign law obligates them to collect intelligence—a provision that would apply to Chinese investors under China’s National Intelligence Law. This same amendment would not directly affect US investors.

A noteworthy aspect of the proposed amendment is that it reflects the growing influence of economic security narratives, which could be invoked to justify opposition to a broader range of foreign investments. The amendment would eliminate pre-closing notice exemptions for investments in certain infrastructure operators and advance one of the pillars of the 2022 Economic Security Promotion Act: preventing disruptions to key infrastructure by foreign entities. The FDI regulations have also been amended to incorporate another pillar of that Act—enhancing supply chain protection for strategically essential materials and products—by expanding the industries subject to FDI review. As in the United States, the expanding concept of economic security can facilitate the pursuit of protectionist policies, even against investors from non-adversarial countries.

In sum, while the Nippon Steel case may deter Japanese investments in the United States, there remain compelling reasons to believe that Japanese appetite for US investments will persist. At the same time, the Japanese government is likely to introduce more sophisticated screening processes with heightened attention to national security, although these measures may not directly impact US investments in Japan.

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Suggested citation:

Hideaki Roy Umetsu and Kohei Takiguchi, “Looking Past Nippon Steel: Japanese Businesses Choose Caution,” USALI East-West Studies, 3, No. 8, July 8, 2025, https://usali.org/nippon-steel/looking-past-nippon-steel-japanese-businesses-choose-caution.

The views expressed in USALI Perspectives essays are those of the authors, and do not represent those of USALI or NYU.

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