By Tim Kelly and Nobuhiro Kubo

TOKYO (Reuters)

One of the frontrunners to become Japan’s next premier stated on Friday that any U.S. move to block Japan’s Nippon Steel from acquiring U.S. Steel on national security grounds would be “very unsettling” and could undermine trust between the allies.

The White House is reportedly close to announcing that President Joe Biden will block the $15 billion deal, according to Reuters. A letter sent to the companies indicated that the takeover could negatively impact the supply of steel required for critical U.S. projects and make U.S. Steel less likely to pursue tariffs on foreign steel importers.

“I find what the United States is saying (about Nippon Steel) to be very unsettling, making such statements or actions that could undermine trust with its allies,” said Shigeru Ishiba, a former defense minister, in an interview with Reuters.

“Recently, the U.S. seems to impose deals and threats even on its allies; this applies not just to NATO countries, but now to Japan. I question whether that is really a fair approach. It is extremely important for the Japanese government to discuss these matters sincerely, earnestly, and logically.”

Ishiba is a candidate for the leadership of Japan’s ruling Liberal Democratic Party, and consequently the next prime minister, on September 27. Opinion polls consistently show him as one of the most popular candidates among the public, even though the leadership vote is limited to party members.

Another candidate vying for the top position, digital minister Taro Kono, expressed to Reuters that he “never imagined” the takeover would raise national security concerns.

“We all believed that the U.S. has a market-oriented economy and that Japan and the U.S. are good allies. I didn’t perceive any economic or security threat involved in this takeover,” Kono noted.

He indicated that he would take the issue to the White House if he were to become prime minister. “This isn’t just about the acquisition of U.S. Steel; it’s an issue that will have broader implications,” he asserted.

‘PROTECTIONIST POLITICS’

Japan is one of the United States’ closest allies and its largest foreign investor. However, Nippon Steel’s bid for the prestigious firm, headquartered in Pennsylvania, has faced opposition from a powerful labor union and has met resistance from both Republicans and Democrats leading up to the November presidential elections.

U.S. ambassador to Japan Rahm Emanuel refrained from commenting on the situation but mentioned that the relationship between the U.S. and Japan is “deeper, richer, and stronger than any single commercial transaction.” Japan’s trade minister Ken Saito emphasized the robust economic relationship when queried about the deal on Friday.

Some analysts share the concerns of Ishiba and Kono that blocking the deal could damage bilateral relations.

“Blocking Nippon Steel’s bid for US Steel will undermine U.S.-Japan cooperation on national security and contradict the concept of ‘ally shoring’ more broadly,” stated Marc Busch, Faculty Fellow at Georgetown McDonough’s Baratta Center for Global Business.

William Chou, a Japan expert at the Hudson Institute, noted that this scenario could cause Tokyo to hesitate about backing U.S.-led economic security initiatives, including restricting China’s access to advanced semiconductors.

Feedback from the Japanese side indicates frustration, as Japanese firms are cooperating on U.S. economic security priorities in semiconductors without receiving similar support on their foreign direct investment (FDI) goals.

Japanese companies, particularly those contemplating investing in the U.S., are closely monitoring Washington’s evaluation of Nippon Steel’s deal, as expressed by Japan’s major business lobby Keidanren on Friday.

“We sincerely hope that the review procedure in the United States will be conducted with the utmost integrity and fairness in accordance with the law,” said Keidanren.

This statement followed concerns from the Japan-U.S. Business Council, which represents major Japanese firms in Washington, D.C., about President Biden potentially blocking the sale.