WASHINGTON, Jan. 4 (Xinhua) -- U.S. President Joe Biden on Friday blocked Japan's Nippon Steel's proposed acquisition of U.S. Steel, citing national security concerns -- a decision that economists say could hurt American steelworkers and the U.S. economy.

 

In response, Japan's Minister of Economy, Trade, and Industry Yoji Muto described the move as "incomprehensible and regrettable" in a statement on Saturday.

 

The decision delivered a setback to Washington's relations with its closest Asia-Pacific ally and prompted the companies to threaten legal action, the Financial Times said in a report.

 

So why is Biden against the deal and what could come next?

 

WHY DOES BIDEN OPPOSE THE DEAL?

 

Biden, who has long been opposed to the purchase, issued a statement on Friday, saying the acquisition "would place one of America's largest steel producers under foreign control and create risk for our national security and our critical supply chains."

 

In an executive order signed on the same day, Biden cited the 1950 Defense Production Act, stating that Nippon Steel "might take action that threatens to impair the national security of the United States."

 

Biden's decision "isn't about Japan," National Security Council spokesperson John Kirby said in a briefing on Friday. "This is about U.S. steelmaking and keeping one of the largest steel producers in the United States an American-owned company."

 

In late 2023, the Japanese steel giant Nippon Steel Corporation announced plans to acquire U.S. Steel, which was once a symbol of American industrial might but has since declined significantly.

 

Before Biden withdrew from the race, both he and his then-opponent, Donald Trump, had expressed opposition to the acquisition.

 

Biden's economic team had previously said that the Committee on Foreign Investment in the United States (CFIUS) would conduct a review of the acquisition.

 

Recently, CFIUS expressed concerns, believing that the deal could lead to a decline in U.S. steel production and pose a national security threat. However, due to a lack of consensus within the committee on whether to block the acquisition, it chose not to provide a formal recommendation on whether the deal should be allowed.

 

HOW DID U.S. STEEL, NIPPON STEEL RESPOND?

 

Biden's decision followed fierce opposition from the United Steelworkers union to the deal. The group's campaign proved fatal to the purchase, despite intense lobbying in recent weeks from executives at U.S. Steel and Nippon Steel, the Financial Times said.

 

U.S. Steel had also previously urged Biden to approve the deal. Following CFIUS's decision to refer the pending transaction with Nippon Steel to the president, U.S. Steel said in a statement that this transaction should be approved on its merits and serve as a model for "friendshoring" investment.

 

"It is the best way, by far, to ensure that U.S. Steel, including its employees, communities, and customers, will thrive well into the future," it said.

 

In a joint statement Friday, the two companies said they are "dismayed" by Biden's decision to block Nippon Steel's acquisition of U.S. Steel, "which reflects a clear violation of due process and the law governing CFIUS."

 

"The President's statement and Order do not present any credible evidence of a national security issue, making clear that this was a political decision," the statement said. "Unfortunately, it sends a chilling message to any company based in a U.S. allied country contemplating significant investment in the United States."

 

"Following President Biden's decision, we are left with no choice but to take all appropriate action to protect our legal rights," it added.

 

"President Biden's action today is shameful and corrupt. He gave a political payback to a union boss out of touch with his members while harming our company's future, our workers, and our national security," David Burritt, U.S. Steel president and CEO, said in a statement on Friday.

 

"He insulted Japan, a vital economic and national security ally, and put American competitiveness at risk," he added.

 

WHAT'S NEXT?

 

The move could have implications for future foreign investment in American companies. "Blocking the deal could be politically popular domestically but could scare away foreign investment in other U.S. companies. It could also starve U.S. Steel of investment it says it needs," CNN said in a report on Friday.

 

Gary Clyde Hufbauer, a nonresident senior fellow at the Peterson Institute for International Economics, told Xinhua that this is really "bad news" for the U.S. economy and American steelworkers. "Nippon Steel has superior blast furnace technology and the cash to implement capital improvements. U.S. Steel has neither, nor do potential U.S. buyers," he said.

 

"Two years from now, U.S. Steel workers, along with shareholders, will sadly regret Biden's decision as the firm sheds workers and shares drop in value. Meanwhile, (President-elect) Trump will likely impose still higher tariffs on U.S. steel imports, imposing high costs on the U.S. economy. A bad outcome all around," said Hufbauer.

 

Shares of U.S. Steel fell 6.53 percent on Friday after Biden blocked the acquisition.

 

Japan is the largest source of foreign direct investment in the United States. In November 2024, Japanese Prime Minister Shigeru Ishiba asked Biden to approve Nippon Steel's acquisition of U.S. Steel to avoid marring recent efforts to strengthen ties between the countries, Reuters said in a report.

 

The outgoing president's decision is "a departure from America's long-established culture of open investment, one that could have wide-ranging implications for the U.S. economy," The New York Times said in an article.