(Failed) Steel Pact and Tensions Between USA and Japan

July 1987, Capitol Gardens. With a smile on her face, Republican Congresswoman Helen Delich Bentley (pictured) swings a big bat and walks over to a Toshiba stereo. Along with her was a large group of colleagues from the US House of Representatives. Bentley walks over to the stereo and gives a short speech to the assembled reporters on the scene. “Betrayal, no matter what it’s called, is still betrayal,” she says. “But if it had a different name, it would be Toshiba.” She then picks up the bat and brings it down on the stereo, destroying it along with the rest. This is the peak of the technological rivalry between the USA and Japan. One of Toshiba’s divisions sold critical technology to the former Soviet Union to help it develop advanced submarines. Washington took this negatively, stating that Tokyo was helping Moscow’s military development by circumventing sanctions. It was a period when the United States feared it was being overtaken by the former World War II enemy. This fear is also evident in Hollywood entertainment productions. Just think back to 2015, described in Back to the Future 2, when Marty McFly is fired by his Japanese boss via video link. The Asian country has been accused of stealing American technology, dumping, and unfair economic policies in the race to control raw materials. Some analysts even hypothesize a military scenario, suggesting a significant reinforcement of the Marine Corps to ensure its readiness for combat. Such is the case with the novel The Coming War, written by George Friedman and Meredith LeBard in 1991.

Doesn’t that remind you of something? Yes, this has been happening in recent years between the United States and another Asian giant, China. Yes, because meanwhile the so-called “lost decades” of Japanese stagnation and the rise of Beijing have brought Tokyo and Washington closer together. The 2012 crisis over the disputed Senkaku/Diaoyu Islands convinced the Asian country to review and strengthen its defense system. The war in Ukraine has led to a retreat from the traditional diplomatic caution that, even during the eight years of the Abe administration, required maintaining deep ties, and not just commercial ones, with Russia and China. Starting February 24, 2022, Tokyo is becoming more and more open. Above all, this was prompted by fear of an ever-closer rapprochement between Moscow and Beijing, as well as growing tensions on the Korean Peninsula and in the Taiwan Strait, two theaters of war in which Japan feels directly involved.

Nevertheless. January 2025, 37 and a half years after that day in July 1987: Joe Biden signs an executive order blocking Nippon Steel’s acquisition of U.S. Steel. The reason? The formula is the same as when Republican congressmen were bashing Toshiba stereos: national security. The outgoing president’s refusal surprised, offended, and angered (to put it mildly) the steel giant and the Japanese government. Suddenly, after years of trade, diplomatic, and military agreements, time seems to have turned back to the sunset of the Cold War. A kind of betrayal after decades of intense pressure from Washington to remove barriers to investment and trade. This is no coincidence given that Japan is the largest foreign investor in the USA. Industry Minister Yoji Muto called Biden’s choice “incomprehensible” and “regrettable,” while even Prime Minister Shigeru Ishiba took a risk by explicitly warning that tearing up the agreement could hurt Japanese investment in the United States. According to the US Chamber of Commerce in Japan, the suspension of shipments could discourage other foreign companies from increasing production in the USA.

The plan called for Nippon Steel to acquire U.S. Steel at $55 per share, representing an equity value of approximately $14.1 billion, plus the assumption of debt, resulting in a total enterprise value of $14.9 billion. Nippon Steel filed a lawsuit challenging the White House’s decision, in part because the steel giant eased its way to approval by actively taking mitigating measures, including the liquidation of its joint ventures in China and Alabama with ArcelorMittal. Japanese media have also been particularly harsh. “The White House’s decision shows that for the USA, national security means whatever it wants it to mean,” the Japan Times wrote. And more: “It is unusual to declare a friend and ally a security threat, as Biden did. There is more than just the United States.”

Additionally, more trade storms loom on the horizon with the inauguration of Donald Trump, who in turn announced his opposition to the deal between Nippon Steel and U.S. Steel. That makes it difficult to imagine that the long legal battle, which has begun in a federal appeals court in Washington, will overturn Biden’s decision, in part because US law gives the president the power to block any merger deemed a threat to national security. The assurances of Anthony Blinken, who recently traveled to Tokyo on his last mission as secretary of state before the change in administration, bare little significance. Obviously, many on Biden’s team were not in favor of blocking the deal. In addition to Blinken, Treasury Secretary Janet Yellen also reportedly tried to persuade Biden to reconsider the decision, which she fears could even undermine the US-Japan military alliance. Nearly 63,000 US troops are stationed at dozens of sites across the Asian country, and Washington has urged Japan to build up its own defense capabilities as a counterweight to China’s growing influence and military power. However, the Nippon Steel case may prompt some in the Japanese government to question why, despite Japan being a major US strategic ally in Asia, in this case it has been treated the same way as Beijing.

It is difficult to envision Tokyo taking direct trade action, but a number of observers believe that the Japanese government may refuse to enforce some of the White House’s supply chain restrictions. This is significant given that the USA has engaged an often-reluctant Japan in some initiatives to limit China’s access to the most sensitive or strategic technologies. Here are a few examples: microchips, artificial intelligence, quantum technologies. Biden even launched the Chips 4 project, which he plans should bring together the USA, Japan, South Korea, and Taiwan to build so-called “democratic supply chains.” Rhetoric that now seems more distant than ever as Trump’s new wave of protectionism approaches. Thus, because of the conflict with Nippon Steel, it may become more difficult to pressure the Japanese government to implement and enforce US restrictions on Chinese companies. In the background, Tokyo is also preparing to invite Xi Jinping for the first state visit by a Chinese president to Japan, barring the 2019 G20 summit.

Suddenly, in 2025 there’s a risk of finding some trace (or wreckage) of a 1987 Toshiba stereo.