In blocking Nippon Steel's plans to buy and control U.S. Steel President Donald J. Trump was living up to a campaign promise.
"U.S. Steel is a very important company to us," Trump said, during a White House press conference with Japanese Prime Minister Shigeru Ishiba last week, killing Nippon's $14.1 billion bid for America's second-largest steelmaker. "They'll be looking at an investment rather than a purchase."
For Trump. "Making America Great Again" means making steel and growing manufacturing in the U.S.
Letting an iconic Japanese company-- Nippon is Japan's largest maker of steel, formed to supply it for the country's post-World War II rebuilding-- own America's second-largest steelmaker isn't part of Trump's playbook.
"(U.S. Steel) was the greatest company in the world. And we didn't want to see it leave," Trump said. "The concept (is) psychologically, not good."
The decision was one of the few where Trump and his predecessor, Joe Biden, vociferiously agreed.
Biden had previously blocked the Nippon-U.S. Steel merger, dubbing it a "risk for (America's) national security."
"We need major U.S. companies representing the major share of U.S. steelmaking capacity to keep leading the fight on behalf of America's national interests," Biden said.
Japan's industry minister, Yoji Muto, said at the time that Biden’s decision was “incomprehensible and regrettable."
Pro-Nippon analysts argued it "could hurt future investment into the U.S." by making Japanesse "conclude that the U.S. distrusts Japan and its companies."
"If the US government blocks the deal and the Japanese government and businesses interpret it as signaling that Japanese investment is unwelcome, we should expect a decline in Japanese investment into the US," wrote U.S.-Asia Law Institute Advisor Bruce Aronson. "Even if that is not the US’s intention, blocking the Nippon Steel-U.S. Steel deal could nevertheless change the investment criteria for Japanese investors."
But to American economic nationalists and Trump supporters, such protestations raise the question-- what would Japan do if the shoe here were on the other foot?
U.S. shareholder activists find "paradise" in Japan
Odds are high that, if U.S. investors were to bid to take control of Nippon Steel, President Ishiba's views would mirror President Trump's.
Nippon isn't just a major employer in Japan, with nearly 30,000 employees. Its largest shareholder is the manager of Japan's Government Pension Investment Fund; the livelihoods of nearly 40 million retired Japanese, in part, rely on Nippon's economic success.
For Japanese leaders, letting a such a company fall under control of foreign shareholders would have both economic risks and, as Trump calls them, "psychological" ones.
To be sure, the question isn't hypothetical. Japanese public company leaders are today already facing U.S. attempts at major influence, if not outright control of their iconic brands and industrial powerhouses.
For the past five years, U.S. trading firms, including Paul Singer's Elliott Capital Management and Farallon Capital Management, have been investing in and lobbying Japanese executives to abandon their traditionally long-term, "pro-Japanese stakeholder" strategic thinking.
A 2019 report by the Finance Committee of the French National Assembly dubbed Japan "the first 'playground' for activist investors after the United States" and dubbed it an "activist paradise."
An analysis found that mostly U.S shareholder activists had taken major positions and made re-structuring demands on 107 Japanese companies in 2022, up from just 24 in 2016.
Elliott, Farallon, Brandes Investment Partners, King Street Capital Management, Third Point, the Antelope Fund, Value Act Capital and Dalton Investments are among the major trading firms pursuing changes in Japanese boardrooms.
Third Point invested ten percent of its $15 billion fund in Sony, then called to break the company up, spinning off its semiconductor and entertainment businesses.
Elliott and Farallon placed directors at Japanese conglomerate Toshiba, Japan's most prominent electronics company as well as one that played a major role in strategic industries for Japan, including making nuclear energy equipment. It was the first time in 80 years that the company had non-Japanese directors.
"Toshiba has disppeared in a whimper"
An accounting scandal at Toshiba led the company to raise outside capital, in 2017, from activist, Western investors and private equity firms promising shareholders U.S.-style management at the company.
"The tactics were simple: gain control of the board as quickly as possible using as little capital as possible, then ensure that the board would auction the business in whole or in part to private equity buyers," wrote Japan-focused investment manager Andew McDermott. "In the meantime, exploit regulatory loopholes to run the public company as if it were already in the hands of (U.S.) private equity managers."
"The tactics ultimately succeeded," McDermott wrote. "While taking control of the board, the activists worked hand-in-hand with (U.S-based) Bain and other private equity firms to "pre-sell" Toshiba. By the time the last non-activist director had been purged, a private equity auction had become the only viable option for the board."
In 2023, what was left of Toshiba was eventually purchased by a consortium of Japanese companies that were its partners, with backing by the Japanese government. They took the company private, and returned management control to Japan.
"Presumably, this deal has been a success in the eyes of the principals. The activists all exited with a profit," McDermott."(But) Toshiba has disappeared with a whimper."
McDermott argued that, among other things, U.S. activist investors forced Toshiba to sell its "profitable and (nationally) strategic nuclear services business" to a New York asset management firm. He also believes distractions left the company, once a "technical leader" in advanced memory, "absent from most of the developments" in high-bandwidth memory driving innovation in artificial intelligence (AI).
"There are dozens of Japanese companies who have quietly reformed themselves without the costs incurred by Toshiba," McDermott wrote. "What do the the 'Toshiba test' results imply for investors contemplating a sudden need to underwrite real things that work rather than simply manufacture investment returns."