TOKYO: Once forecast to become the world’s biggest economy, Japan slipped below Germany last year to fourth place, official data showed on Thursday (Feb 15), although India is projected to leapfrog both later this decade. Despite growing 1.9 per cent, Japan’s nominal 2023 gross domestic product in dollar terms wasContinue Reading
Economy minister Yoshitaka Shindo stressed the need to achieve solid wage growth to underpin consumption, which he described as “lacking momentum” due to rising prices.
“Our understanding is that the BOJ looks comprehensively at various data, including consumption, and risks to the economy in guiding monetary policy,” he told a news conference after the data’s release, when asked about the impact on BOJ policy.
Japan’s nominal GDP stood at US$4.21 trillion in 2023, falling below US$4.46 trillion for Germany to rank as the world’s fourth-largest economy, the data showed.
“The overtaking … in size in dollar terms owes a lot to the recent collapse in the yen. Japan’s real GDP has actually outperformed Germany’s since 2019,” said Fitch Ratings economist Brian Coulton.
Germany’s heavily export-dependant manufacturers have been hit particularly hard by soaring energy prices in the wake of Russia’s invasion of Ukraine.
Europe’s biggest economy has also been hampered by the European Central Bank raising interest rates in the eurozone as well as uncertainty over its budget and chronic shortages of skilled labour.
Japan is also heavily reliant on exports, in particular cars, although the weak yen – making exports cheaper – has helped big firms like Toyota offset weakness in key markets such as China.
But it is suffering more than Germany in terms of worker shortages as its population falls and birth rates remain low, and economists expect the gap between the two economies to widen.
“Like Japan, Germany’s population has been declining, but it has nevertheless achieved steady economic growth,” said Toshihiro Nagahama, economist at Dai-ichi Life Research Institute.
“This is because, especially since the 2000s, the government authorities in Germany have been actively implementing policies to create an environment that makes it easier for companies to operate in the country,” he said.
During its boom years of the 1970s and ’80s, some projected that Japan would become the world’s biggest economy.
But the catastrophic bursting of Japan’s asset bubble in the early 1990s led to several “lost decades” of economic stagnation and deflation.
When in 2010 Japan was overtaken as number two by Asian rival China – whose economy is now around four times larger – it prompted major soul-searching.
While largely a product of the yen’s slide, falling behind Germany will still be a blow to Japan’s self-esteem and add to the pressure on unpopular Prime Minister Fumio Kishida.
More humiliation is to come with booming India projected to overtake Japan in 2026 and Germany in 2027 in terms of output – although not in GDP per capita – according to the International Monetary Fund.
Germany and Japan “are shrinking in terms of contribution to global growth in favour of faster-growing ones … because their productivity is already very high and it is very hard to increase it”, said Natixis economist Alicia Garcia-Herrero.
“Of course, both Germany and Japan could take measures to mitigate this. The most obvious one is allowing for more immigration or increasing the fertility rate,” she told AFP.
Japan “has not made progress in raising its own growth potential”, Japanese financial daily the Nikkei said in a recent editorial.
“This situation should be taken as a wake-up call to accelerate neglected economic reforms.”
EPA-EFE/REX/ShutterstockJapan has unexpectedly fallen into a recession after its economy shrank for two quarters in a row.
The country’s gross domestic product (GDP) contracted by a worse-than-expected 0.4% in the last three months of 2023, compared to a year earlier.
It came after the economy shrank by 3.3% in the previous quarter.
The figures from Japan’s Cabinet Office also indicate that the country may have also lost its position as the world’s third-largest economy to Germany.
Economists had expected the new data to show that Japan’s GDP grew by more than 1% in the fourth quarter of last year.
The latest figures were the first reading of Japan’s economy growth for the period and could still be revised.
In October, the International Monetary Fund (IMF) forecast that Germany was likely to overtake Japan as the world’s third-largest economy when measured in US dollars.
The IMF will only declare a change in its rankings once both countries have published the final versions of their economic growth figures. It began publishing data comparing economies in 1980.
Economist Neil Newman told the BBC that the latest figures show that Japan’s economy was worth about $4.2tn (£3.3tn) in 2023, while Germany’s was $4.4tn.
This was due to the weakness of the Japanese currency against the dollar and that if the yen recovers, the country could regain the number three spot, Mr Newman added.
At a press conference in Tokyo this month, the IMF’s deputy head, Gita Gopinath, also said an important reason for Japan potentially slipping in the rankings was the yen falling by about 9% against the US dollar last year.
However, the weakness of the yen has helped to boost the share prices of some of Japan’s biggest companies as it makes the country’s exports, such as cars, cheaper in overseas markets.
This week, Tokyo’s main stock index, the Nikkei 225, crossed the 38,000 mark for the first time since 1990, when a collapse in property prices triggered an economic crisis. The Nikkei 225’s record high of 38,915.87 was set on 29 December 1989.
The latest GDP data may also mean that the country’s central bank may further delay a much-anticipated decision to raise the cost of borrowing.
The Bank of Japan introduced a negative interest rate in 2016 as it tried to boost spending and investment.
Negative rates make the yen less attractive to global investors, which has pushed down the currency’s value.
PUBLISHED : 15 Feb 2024 at 04:00
The Ministry of Agriculture and Cooperatives has sought approval for next year’s fiscal budget of 411 billion baht, more than three times higher than the previous budget, based on the expectation it will triple farmers’ incomes within four years.
Chantanon Wannakejohn, secretary-general to the Office of Agricultural Economics, said the ministry is seeking this amount for its short-medium and long-term plans to increase farmers’ incomes as they are the largest group of workers in the country.
“Under the 411-billion-baht budget, we hope to see incomes among farmers rise threefold by 2028, which is the ministry’s main focus,” he said.
Mr Chantanon said the short-term plan would require 81.6 billion baht, which would be used to promote agro-tourism activities, find new markets, deal with fishery problems, solve debt issues, and tackle haze pollution. It would also be used to set up plans responding to the environmental crisis, promote carbon neutrality, and suppress meat smuggling.
He said another budget of 1.4 billion baht would be needed for a middle-term plan, adding the ministry wants to promote advanced farming technology such as precision farming systems.
Mr Chantanon said a further 26.5 billion baht would be needed to manage free-trade agreement discussions with international partners, promote new crop plantations that better fit environmental and economic changes, and support the processing of crops.
A budget of 301.9 billion baht will be needed for the long-term plan to be allocated for improving water management and crop production and upgrading land titles for farmers.
Mr Chantanon said this year’s fiscal budget of 120.6 billion baht should be announced in the Royal Gazette by April.
The fiscal budget for 2025 will be forwarded to the Budget Bureau and cabinet for consideration.
PUBLISHED : 15 Feb 2024 at 04:00
The Ministry of Agriculture and Cooperatives has sought approval for next year’s fiscal budget of 411 billion baht, more than three times higher than the previous budget, based on the expectation it will triple farmers’ incomes within four years.
Chantanon Wannakejohn, secretary-general to the Office of Agricultural Economics, said on Wednesday that the ministry is seeking this amount for its short-medium and long-term plans to increase farmers’ incomes as they are the largest group of workers in the country.
“Under the 411-billion-baht budget, we hope to see incomes among farmers rise threefold by 2028, which is the ministry’s main focus,” he said.
Mr Chantanon said the short-term plan would require 81.6 billion baht, which would be used to promote agro-tourism activities, find new markets, deal with fishery problems, solve debt issues, and tackle haze pollution. It would also be used to set up plans responding to the environmental crisis, promote carbon neutrality, and suppress meat smuggling.
He said another budget of 1.4 billion baht would be needed for a middle-term plan, adding the ministry wants to promote advanced farming technology such as precision farming systems.
Mr Chantanon said a further 26.5 billion baht would be needed to manage free-trade agreement discussions with international partners, promote new crop plantations that better fit environmental and economic changes, and support the processing of crops.
A budget of 301.9 billion baht will be needed for the long-term plan to be allocated for improving water management and crop production and upgrading land titles for farmers.
Mr Chantanon said this year’s fiscal budget of 120.6 billion baht should be announced in the Royal Gazette by April.
The fiscal budget for 2025 will be forwarded to the Budget Bureau and the cabinet for consideration.
MSCI (Morgan Stanley Capital International), a leading global index provider, has decided to slash dozens of Chinese companies from its global benchmarks. This decision comes on the heels of the turmoil in China’s stock market, which witnessed trillions of dollars in value wiped out.
Simultaneously, MSCI has elevated India’s weightage in its Global Standard (Emerging Markets) index to a historic high of 18.2%, marking a pivotal moment in the global investment landscape.
MSCI’s decision on India underscores the country’s robust economic performance and strategic policy decisions.
In its February review, MSCI added five Indian stocks to its Global Standard index without any deletions.
This move reflects confidence in India’s market resilience and its potential as an attractive investment destination. Notably, the country’s weightage in the index has nearly doubled since November 2020, positioning it as the second-largest constituent after China.
Several factors contribute to India’s ascending prominence in MSCI’s Global Standard index.
Primarily, it’s the standardized foreign ownership limit (FOL), implemented in 2020, which has enhanced transparency and accessibility for global investors.
In addition, the sustained rally in domestic equities has bolstered India’s appeal, showcasing the country’s economic resilience amid global uncertainties.
Relative underperformance of other emerging markets, particularly China, has further tilted the scales in favor of India.
Conversely, the exclusion of 66 Chinese stocks from MSCI’s global benchmarks reflects the challenges facing China’s market. The ongoing concerns about China’s struggling property sector and weak consumption have dampened investor confidence, leading to a decline in China’s weighting in global portfolios.
The move by MSCI to trim Chinese stocks is the highest tally of exclusions in at least two years, signifying a significant shift in investor sentiment.
The implications of MSCI’s decision reverberate across the portfolios of global investors. The move to cut Chinese stocks suggests a reassessment of risk and a desire for diversification.
Investors, already wary of China’s economic uncertainties, may view India as a more stable and promising alternative.
As China’s weight diminishes in global portfolios, there is a growing recognition of the need to explore other emerging markets, and India’s elevated position becomes increasingly appealing.
While the removal of Chinese stocks may be perceived as a risk-mitigation strategy, it also presents an opportunity for investors to reallocate funds to regions with growth potential.
India, with its burgeoning consumer base, economic reforms, and tech-driven innovation, is becoming an increasingly attractive prospect for those seeking diversification beyond the traditional powerhouses.
Global investors must adapt to this evolving environment, recognizing both the risks and opportunities presented by these strategic shifts.
As the investment community embraces diversification, India’s ascent in MSCI’s indices signals a new era in global portfolio management – but it would be foolish to write off China, which has proved its resilience time and again.
Nigel Green is founder and CEO of deVere Group. Follow him on Twitter @nigeljgreen.
Getty ImagesIndian farmers are set to continue their march to Delhi as part of a protest demanding minimum crop prices.
The farmers, most of whom are from Punjab state, are still more than 200km (125 miles) from the capital at the Shambhu border in Haryana state.
The capital is ringed by razor wire, cement blocks and fencing on three sides to block their entry.
On Tuesday, Haryana police fired tear gas after protesting farmers began removing barricades on the way.
Later at night, farm leaders called a “ceasefire” and said they would resume their march on Wednesday morning.
The protest march began on Tuesday after two rounds of talks between farm union leaders and federal ministers failed to break the deadlock. More than 200 unions are participating in the march.
Farmers are asking for guaranteed floor prices – also known as minimum support price or MSP – which allows them to sell most of their produce at government-controlled wholesale markets, or mandis. They are also demanding that the government fulfil its promise of doubling farmers’ income.
The farmers aim to reach the capital after crossing the state of Haryana.
Video footage on Wednesday morning showed thousands of riot police and paramilitary troops deployed along Delhi borders to keep the protesters away.
On Tuesday, visuals from the Ambala city, north of the capital, showed thick clouds of tear gas.
At the Shambhu border, clashes broke out between police and protesters as they tried to press past the barricades. Police dropped tear gas on the crowd using drones.
Several protesters were injured in the police action. Security personnel also suffered injuries from stones pelted at them by the protesters.
Traffic jams and disruptions were reported across Delhi as authorities diverted routes and blocked roads.
Farm leader Sarwan Singh Pandher told ANI news agency that there were approximately 10,000 people at the Shambhu border. Calling the attack on the farmers “shameful”, he said, “we are farmers and labourers of the country and we do not want any fight”.
Farmers form an influential voting bloc in India and analysts say the government of Prime Minister Narendra Modi will be keen not to alienate them. His Bharatiya Janata Party (BJP) is seeking a third consecutive term in power in general elections this year.
“Our objective is that the government listens to our demands,” Mr Pandher had said ahead of the march.
In 2020, protesting farmers had hunkered down for months, blocking national highways that connect the capital to its neighbouring states. Their year-long protest, seen as one of the biggest challenges to Mr Modi’s government, forced the authorities to rollback controversial agriculture reforms.
The protesters have received some support from the Punjab and Haryana High Court which has said that as citizens of the country, the farmers had the “right to move freely”.
India’s opposition leaders have also extended support to them and condemned the government’s attempt to stop them from reaching Delhi.
Congress party leaders Rahul Gandhi and Mallikarjun Kharge said on Tuesday that they would enact a law to guarantee minimum price for the farmers if the party was voted to power in the elections.
Among the wackiest things to come from Donald Trump’s mouth recently is the former US president trying to take credit for China’s US$7 trillion stock reckoning.
“I mean, look, the stock market almost crashed when it was announced that I won the Iowa primary in a record,” Trump told Fox News on February 11. “And then when I won New Hampshire, the stock market went down like crazy.”
In reality, China’s spectacular stock rout has been playing out since 2021, well after Joe Biden moved into the White House. But there is one investor crowd taking notice of the growing odds Asia might soon be grappling with a Trump 2.0 presidency: currency traders.
Trump’s threats to impose tariffs exceeding 60% on Chinese goods has the cost of hedging the yuan soaring to the highest levels since 2017.
In China, “the most frequently asked questions among local investors include implications for China should Donald Trump become the next US president,” says Goldman Sachs economist Maggie Wei after a series of recent meetings with mainland mutual funds, private equity funds and asset managers.
Even today, well before Trump might have a chance to shake up global trade anew, “the outlook for trade flows going forward is likely one of moderation,” says Rubeela Farooqi, economist at High Frequency Economics. The downshift is thanks to “expectations of slower demand and growth going forward, both domestically and abroad.”
The specter of a supersized trade war is the last thing the global economy needs as 2024 unfolds. Any added headwinds from the West would compound the domestic troubles that have knocked Chinese stocks sharply lower, namely a deepening property crisis, weak retail sales, sputtering manufacturing activity and deflationary forces.
The threat of significantly higher taxes on Chinese-made goods destined for the US could slam business and household confidence. Executives might be even less inclined to add new jobs at a moment when youth unemployment is at record highs.
Trade war worries also might make China Inc less willing to fatten paychecks. This could imperil President Xi Jinping’s hopes of recalibrating economic engines toward a consumer demand-led growth model.
It also could lead to a big spike in exchange rate volatility and put downward pressure on the yuan. That’s precisely what Xi and Premier Li Qiang don’t want in 2024. For one, it could increase default risks of property developers with offshore debt. For another, it could set back Xi’s success to date in deleveraging the financial system.
Then there’s the upcoming US election. The one thing on which President Joe Biden’s Democrats and Republicans loyal to Donald Trump agree on is being tough on China. And a weaker yuan falling ahead of the November 5 contest could provoke Washington in unpredictable ways.
In the meantime, the mere threat of a bigger trade war could spook investors currently piling into US stocks. If Trump were to add another 60% tariff on top of those that he imposed during his 2017-2021 presidency, American consumers would bear the brunt through costlier goods.
Trump’s initial trade war neither catalyzed a US manufacturing boom nor narrowed the US trade deficit with China. Meanwhile, the US government had to throw billions of dollars of federal aid to US farmers as China scrapped purchases of American agricultural goods in retaliation.
A big spike in US tariffs would necessarily be inflationary, complicating the US Federal Reserve’s hopes of cutting interest rates. Prolonging the period of high US bond yields would undermine corporate America while also reducing household disposable spending.
The inflationary impact of a Trump 2.0 presidency could shake up the economic trajectory of nations everywhere, not least in export-oriented Asia. An analysis by Bloomberg Economics reckons that a 60% tax on all Chinese imports would effectively shrink a vital $575 billion trade relationship to a trickle.
All this leaves Xi’s Communist Party with decidedly mixed feelings about whether China would fare better under another four years of Biden or a second Trump term.
On the surface, at least, Biden is endeavoring to restore ties with Xi’s party, a pivot on full display last November when Xi visited San Francisco for the Asia-Pacific Economic Cooperation (APEC) Summit, a grouping dedicated to trade promotion.
Biden, though, has so far refused to lift the Trump-era tariffs that so enraged Xi’s economic team. The Biden administration also has gone at China’s soft targets with surgical precision, including limiting its access to cutting-edge technology like high-end semiconductors and the gamut of chipmaking equipment.
The last two years also saw the US devise a screening program to curb investments in China’s efforts to raise its game in quantum computing and artificial intelligence. Though Biden has taken the rhetorical tone down a notch, his policies have arguably exacted greater damage than Trump’s.
This includes investing hundreds of billions of dollars in domestic tech capacity that the Trump administration neglected. The US building new economic muscle at home worries Xi more than 1980s-style policies around which China can generally easily navigate. Here, think of Trump’s failed effort to kill giant Chinese telecom gear maker Huawei.
Looked at through this prism, there’s an argument that China might prefer Trump redux. As Zhu Junwei of Grandview Institution notes, there’s a reason the Beijing think tank’s research suggests 60% of Chinese prefer Trump because of how his unruly presidency might further dent America’s global standing.
Either way, Xi’s party is bracing for an US election cycle sure to see Democrats and Republicans trying to one-up each other at China’s expense.
Increased data security measures are sure to emerge as the year unfolds. The icy reception Shou Zi Chew, CEO of ByteDance-owned TikTok, received on Capitol Hill recently dramatized the race to curb services and transactions across industries.
China’s electric vehicles (EVs) market could face its own onslaught of data security speed bumps from either a Biden or Trump administration.
In a speech in late January, Biden’s National Security Adviser Jake Sullivan said there are “competitive structural dynamics” in the US-China relationship. But, he claimed, this competition “doesn’t have to lead to conflict, confrontation or a new Cold War.”
It already seems too late for that. But as November 5 approaches, currency traders are becoming increasingly antsy, as seen in recent spiking volatility. The gap between nine-month implied volatility on the offshore yuan and measures of six-month volatility is the highest in nearly seven years.
As that electoral contest approaches, strategists at Deutsche Bank expect the US dollar will stay mainly within 2023 ranges even if the US Federal Reserve begins cutting interest rates, as many investors expect. “The market is likely to start adding to a dollar safe-haven premium through the year as election risks build,” Deutsche Bank argues in a note.
There’s an argument, too, that the dollar might be doomed if Trump gets another shot at naming a Treasury secretary. In 1971, then-US president Richard Nixon’s Treasury chief famously said that “the dollar is our currency, but it’s your problem.” This seems even truer now than in 1971 and the sentiment could be supersized during a Trump 2.0 presidency, if his first term was any guide.
While running for president in May 2016, Trump even hinted at defaulting on US debt. Trump told CNBC “I love debt. I love playing with it.” When asked what he might do if the budget deficit grew too fast, he said: “I would borrow, knowing that if the economy crashed, you could make a deal. And if the economy was good, it was good. So, therefore, you can’t lose.”
In April 2020, the Washington Post detailed how Trump officials, looking to punish China, mulled canceling debt held by Beijing. However, Treasury officials succeeded in talking Trump out of a stunt that likely would have made the 2008 Lehman Brothers crisis seem like a hiccup.
But who knows what tricks Trump may have up his sleeve in a second term? The risk is hardly a non-negligible worry for Japan, China and other top Asian central banks sitting on more than $3 trillion of US Treasury securities.
The US entered 2024 with its national debt topping $34 trillion and Moody’s Investors Service warning it might yank away America’s only remaining top rating.
That came three months after Fitch Ratings downgraded the US to AA+ as Republicans and Democrats wrestled over funding the government and 12 years after a Standard & Poor’s downgrade amid partisan bickering over the debt ceiling.
More recently, Moody’s warned that “the greatest near-term danger to the dollar’s position stems from the risk of confidence-sapping policy mistakes by the US authorities themselves, like a US default on its debt for example. Weakening institutions and a political pivot to protectionism threaten the dollar’s global role.”
Moody’s adds that “although we expect that politicians will eventually agree to raise or suspend the debt limit and avoid a default on government debt, greater polarization in the domestic political environment over the last decade has weakened both the predictability and effectiveness of US policymaking. Sanctions further inhibiting the free flow of the dollar in global trade and finance could encourage greater diversification.”
Team Biden has raised concerns of its own over a “weaponized” dollar as Washington squares off with Russia over Ukraine. Those allegations emerged after the Biden administration, as part of sanctions, moved to freeze hundreds of billions of dollars of Moscow’s foreign reserves.
Yet at least one thing is clear: Asia’s markets will find themselves in harm’s way as Trump and Biden try to prove on the campaign trail who is tougher on China. But as the rival candidates flex and joust, there is much more at stake than the US presidency.
Follow William Pesek on X, formerly Twitter, at @WilliamPesek
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Thousands of protesting farmers are marching from neighbouring states to India’s capital Delhi to seek assured prices for their crops
In 2020, farmers had camped at Delhi borders protesting against controversial agricultural reforms.
The year-long protest – in which dozens died – was called off after the government agreed to repeal the laws.
Now the farmers have hit the streets again saying their key demands still haven’t been fulfilled.
Police in Delhi have sealed the borders on three sides of the city, in an attempt to avoid a repeat of 2020 when protesting farmers hunkered down for months, blocking national highways that connect the capital to its neighbouring states. The movement was seen as one of the biggest challenges to Prime Minister Narendra Modi’s government.
Two rounds of talks between farm union leaders and federal ministers have failed to break the deadlock.
Farmers are asking for assured floor prices – also known as minimum support price or MSP – which allows them to sell a majority of their produce at government-controlled wholesale markets or mandis. They are also demanding that the government fulfil its promise of doubling farmers’ income.
The march comes just months before the general elections in which Mr Modi’s Bharatiya Janata Party (BJP) is seeking a third term in power. Farmers form one of the most influential voting blocs in India and experts say the government would try not to alienate them ahead of the polls.
On Monday, federal ministers held a six-hour-long meeting with farm union leaders. The two sides reportedly came to an agreement on some of the demands, including the withdrawal of cases registered against protesters during the 2020 agitation.
But there was no consensus on the MSP. In 2021, after the farm laws were repealed, the government had said it would set up a panel to find ways to ensure support prices for all farm produce. But the committee is yet to submit its report.
In the meantime, authorities have deployed barricades, fenced the border with barbed wire and added cement blocks to stop protesters from entering the capital.
Police have also prohibited large gatherings in the city, including at borders points between Delhi and the neighbouring Uttar Pradesh and Haryana states through which the farmers are expected to reach the capital.
In Haryana, the BJP-led state government has suspended internet services in seven districts until Tuesday.
Over 200 farmer unions are participating in the march. “We will move peacefully and our objective is that the government listens to our demands,” Sarvan Singh Pandher, general secretary of the Punjab Kisan Mazdoor Sangharsh Committee, told the ANI news agency.
Farmers’ and trade unions have also announced a rural strike on 16 February during which no agricultural activities will be carried out. Shops, markets and offices in all villages will be closed while farmers will block major roads across the country.
Nippon Steel’s decision to buy US Steel, the iconic American company, is a test for Joe Biden. The president has embraced an economic security agenda designed to protect the interests of America’s middle classes while promoting partnership and closer collaboration with allies.
There have been howls of disapproval and vows to block the deal – but that would be a mistake. The Nippon Steel purchase can advance both of Biden’s objectives and show the world that economic security is not thinly veiled protectionism.
US Steel is an icon. It was arguably the most important company in the world when formed in 1901. It became the first billion-dollar corporation – its US $1.4 billion valuation was twice the size of the US federal budget – producing the metal that was the very embodiment of the Industrial Revolution.
For a company that once made 40% of all the steel in the world, the last few decades have been marked by stagnation and decline. Last year, its 15,000 employees – a sliver of its peak of 340,000 during World War II – produced 11.2 million tons of steel, 27th in world output and second in the US. (By revenue, the company ranks third in the US.)
Experts and engineers struggle to identify any important innovation by the company in recent years. One analysis concluded that “no major steelmaking technology over the last century came out of US Steel.” Not surprisingly, the company lost money in nine of the last 15 years.
The company’s woes amplified calls for protection of domestic markets. Donald Trump embraced that cause and imposed 25% tariffs on steel imports, insisting that “trade wars are good and easy to win.”
Biden replaced those taxes with quotas (for European producers at least) and used those barriers to incentivize foreign companies to invest in US production. The Inflation Reduction Act helped domestic producers to up their game.
The deal by Nippon Steel to purchase the company was valued at $14.1 billion, a little less than twice the offer from Cleveland Cliffs, a domestic competitor, and a 40% premium on the closing price of US Steel shares on the day it was announced. Combining US Steel with Nippon, now the world’s fourth-largest maker, will produce the world’s second-largest steel company, trailing only China Baowu Group.
The deal should be applauded. Instead, the announcement was protested by both sides of the political aisle.
Republicans denounced the purchase, with Republican Senator JD Vance of Ohio warning that it would undermine US national security since foreigners would be “less responsive to US national security needs.” A letter from Vance and fellow GOP senators Marco Rubio and Josh Hawley to Treasury Secretary Janet Yellen calls Nippon Steel “a company whose allegiances clearly lie with a foreign state.”
After meeting with Teamsters officials, former President Donald Trump, the likely GOP nominee for the 2024 election, called the deal “terrible” and said he would “block it instantaneously. Absolutely.”
Democrats have been no less apoplectic. Senator John Fetterman of Pennsylvania, where US Steel is headquartered, thundered that “The acquisition of US Steel by a foreign company is wrong for workers and wrong for Pennsylvania. I’m gonna do everything I can to block it.” Bob Casey, Pennsylvania’s other senator, and Ohio’s Sherrod Brown, both Democrats, agree.
Steelworkers, too, complained, saying that they had not been consulted before the deal was struck and challenging Nippon Steel’s commitment to the collective bargaining agreement their union signed with US Steel. Nippon Steel said it will honor all existing union contracts.
With 1 million union members in key swing states, political calculations weigh heavily on any administration decision. The Biden administration has acknowledged the firestorm. Lael Brainard, the president’s national economic adviser, said the deal deserved “serious scrutiny.”
The administration will finesse complaints by referring the purchase to the Committee on Foreign Investment in the United States (CFIUS), which Yellen chairs (hence the letter from the GOP senators), for an interagency review that will assess their concerns.
The deal should go through.
The Department of Defense has downplayed national security concerns since the military needs just 3% of domestic steel production. US Steel doesn’t sell anything to the Pentagon and pointed out that its “manufacturing technologies and processes are not designed specifically for the production of steel with military applications, nor does US Steel have any products, capability, or know-how that is specific to any US government applications, including US military applications.”
To call Nippon Steel a foreign company is misleading. It’s already operating in the US, with stakes in eight companies employing some 4,000 people. The purchase is intended to increase production to serve US consumers (and offset declining demand in Japan) and improve efficiency in US operations, both of which should be welcome by politicians and the public.
The idea that Japanese purchases of US companies are a threat is a relic of that brief, misguided moment in the 1980s and ’90s when such investments were seen as symbols of American decline and proof of Japan’s claim to be the world’s leading economy.
US Steel’s moment may have passed, but Nippon Steel’s purchase is a sign of American resurgence and strength, not weakness.
Today, Japan is the United States’ closest ally in the Indo-Pacific. It has worked ever more closely with the US to promote security not only in this region but around the world. Their bilateral efforts in economic security, in particular, are pacing projects with other countries.
If the US truly wants to work with like-minded nations to build resilience, ensure stable and secure supply chains, and forge a coalition to backstop its preferred vision of international order, then this deal should go through.
Brad Glosserman ([email protected]) is deputy director of and visiting professor at the Center for Rule-Making Strategies at Tama University as well as senior adviser (nonresident) at Pacific Forum. He is the author of Peak Japan: The End of Great Ambitions (Georgetown University Press, 2019).
This article was originally published by Pacific Forum. It is republished here with kind permission.
