Commentary: Japan has learnt a hard lesson about US friendship

TOKYO: Anyone can see why Nippon Steel’s US$15 billion attempt to acquire US Steel appears doomed to fail. It’s not the price. It’s not the terms. It’s not the shareholders. It’s the election, stupid.
Perhaps. 
By the time American voters go to the polls in November, it will be almost 11 months since the Japanese steelmaker (very naively, to some) launched its bid for the US company. It placed a meaty premium on its target but underestimated the even meatier discount of being foreign in an election year.
The steelmaker’s motives are much the same as those of many other Japanese companies now perpetuating an M&A boom that remains overwhelmingly focused on the US. Corporate Japan’s future depends, to an ever greater extent, on its ability to grow and invest outside its home country, and America is where Japan most wants to grow and invest. 
Japanese housebuilders, tech giants and banks have all recently done deals that attest to the still unsatiated appetite for American assets. None of their targets has headquarters in Pittsburgh, in the electorally knife-edge state of Pennsylvania, but that has not, according to M&A bankers, allayed growing concerns about whether “normal” is likely to come back to dealmaking in the US.
From the outset, Nippon Steel’s bid has been painted as sinister: In the early phases, US senators gasped that its allegiances “clearly lie with a foreign state”, then other objections followed.
With election day drawing closer, Donald Trump has pledged to block the deal immediately if he wins while Kamala Harris has said US Steel should remain “American owned and American operated”.
The Committee on Foreign Investment in the US, which vets foreign buyers for national security risks, concluded that Nippon Steel did indeed pose such risks. Neither the state department nor Pentagon shared that view, but election politics, as some feel Nippon should have foreseen, follow a snarling rationale.
Throughout Nippon’s various efforts to overcome these obstacles, significant lines have been crossed on the US side – transgressions that cavalierly question Japan’s status as America’s closest ally in Asia, and among its best in the world.
This questioning of a Japanese company’s – and by association, Japan’s – trustworthiness as an owner of US assets are, at best, awkwardly timed. At worst, they are a gift to the very countries that the US and its allies see themselves as ranged against.
These questions have been asked at a point when the Biden administration has been pushing the argument that, in the face of growing threats from China, Russia and the alarming combination of both, American alliances keep America safe.
That assertion has come with unusually high demands of America’s allies, with Japan prominent on the list of those most affected.
But this paradox, we are assured, is just the natural effect of this being a US election year. The world’s largest economy, in other words, grants itself – and works on the basis that others must grant it as well – a free pass under which the normal rules do not apply.
There are two obvious problems with this from the point of view of Japanese companies that are contemplating – and now, according to some bankers, reassessing – a continuation of their M&A ambitions in the US.
The first is that the election-affected season now appears (based purely on Nippon’s experience) to last close to a year.
The second is that there is, as yet, no evidence that either a Harris or Trump administration will be in any particular hurry post-election to reassure Japanese companies that the past 12 months were an aberration. Nor is there a sense that this inconsistency between loudly stated foreign policy and the realpolitik of how this deal has been treated will evaporate.
The deeper issue, though, is a failure of articulation. It should be possible, even in the dysfunctional, politically pragmatic window of an election, for the US to communicate to its electorate the idea that a friend as close as Japan merits the benefit of the doubt. Or at least a significantly more generous hearing than it has received so far.
The excuse that this is all just an effect of the election, in that context, is not at all reassuring if it is essentially applied to one year in every four.
The appeal of dealmaking in the US remains far too great for Japanese companies to give up purely on the basis of Nippon Steel’s experience, but an important lesson has been learnt about the velocity of friendship.