In Trump 2.0, Asia Inc. faces security minefield in path to U.S. investments

Originally published on Nikkei Asia (January 24, 2025)

WASHINGTON/NEW YORK -- On his triumphant return to the White House earlier this week, Donald Trump wasted no time signaling his "America First" agenda, hinting at plans for trade tariffs on the likes of China, Canada and Mexico that he says will protect the world's biggest economy.

Less clear is how he will handle foreign direct investment (FDI) that channeled $5.4 trillion into the U.S. in 2023, the last year for which numbers are available -- a 50% jump from 2016, the year before Trump's first inauguration as U.S. president.

Muddying the waters is the decision by his predecessor Joe Biden to block Nippon Steel's agreed, nearly $15 billion deal to take over U.S. Steel just a few weeks before his term ended, citing unspecified national security concerns. The move underlines how politicized foreign investment has now become in the United States, even as it boosts prospects for new jobs, consumer spending and economic growth.

Biden is now being sued by the two companies in their efforts to revive the takeover. Meanwhile, Trump made no direct mention of how he aims to approach the Nippon Steel deal and FDI in general in myriad pronouncements on Day 1 of his presidency, including ordering the U.S. Treasury to line up unspecified "protective measures" against countries with tax rules affecting American companies.

Before taking office, and ahead of Biden's ruling, Trump did oppose the takeover in robust terms. But he also personally hosted Masayoshi Son, chief of global tech investor SoftBank, for a joint announcement of a $100 billion investment in the U.S. artificial intelligence industry.

For Michael Froman, former U.S. trade representative and now president of the Council on Foreign Relations, there will be heightened scrutiny of foreign ownership in strategic sectors. "There is an increasingly strong view that there are certain sectors that the U.S. needs to have domestic production over," Froman told Nikkei Asia.

"Either because there's a direct national security issue, or because it's so central to the economic competitiveness of the United States that could have spillover effects if we didn't have manufacturing in that area to a certain degree."

Asian corporate executives, investors and political observers have expressed disbelief over Biden's decision, which prompted both companies to file two lawsuits alleging the move was unconstitutional and seeking to delay the order to unwind the buyout until June.

While the putative steel partners fume, businesses in Asia and elsewhere are closely watching for Trump's next moves as they consider how to navigate pumping more money into the U.S. economy.

FDI from Asia into the U.S. surged 60% to nearly $1 trillion in 2023 compared with 2016, according to the latest data from the U.S. Bureau of Economic Analysis, outpacing the 50% growth in FDI from all around the world, with many foreign companies attracted by America's expanding population, heavy consumption and strong economy, analysts say.

Japan alone was a leading investing country, accounting for $688 billion in 2023, up more than 60% from 2015. China's FDI in the U.S., meanwhile, slid 12% over the same period to $28 billion.

Aside from the diverging fates of Nippon Steel and SoftBank, Japanese automaker Toyota Motor invested an additional $8 billion in a U.S. battery plant under construction in 2023. Nissin Foods Holdings is spending more than $200 million to build its first new factory in the country in nearly 50 years, while beverage maker Yakult has announced plans for a factory with investments of about $400 million.

This week SoftBank and OpenAI announced plans to launch a new AI infrastructure project in the U.S. called Stargate, separate from the deal SoftBank's Son announced with Trump. Stargate is looking at spending $100 billion in tech infrastructure, increasing to $500 billion over the next four years, with funding contributions from Abu Dhabi state fund MGX and Oracle.

"There is no doubt that the Nippon Steel ruling was a slap in the face," a Washington-based representative of a Japanese trading house said, declining to be identified because of the sensitivity of the matter. "Biden's short presidential order talked about there being 'credible evidence' that Nippon Steel posed a national security threat, without explaining what that evidence was."

Biden's move came after several national security reviews by the powerful Committee on Foreign Investment in the United States (CFIUS) that failed to lead to a unanimous agreement to pass or scuttle the deal, a rare moment according to experts,

CFIUS investigated 128 foreign transactions in 2023. Some 57 companies withdrew their proposed transactions, nine of them for national security reasons.

Visiting Washington for President Trump's inauguration this week, Japanese Foreign Minister Takeshi Iwaya told newly appointed U.S. Secretary of State Marco Rubio that, as a leading investor in the U.S., Japan intends to continue putting money into the American economy. With clouds hanging over the Nippon Steel deal, he asked Rubio to ensure that the U.S. makes efforts to dispel anxieties regarding investment in the U.S., Iwaya told reporters after the meeting.

"Those two lanes of economic versus national security protection are going to become more muddied and kind of become one and the same," said one former treasury department official, requesting anonymity in order to be able to comment freely.

Security issues have become entrenched in the U.S. government's industrial policies with key investments in manufacturing and developing advanced technologies. That was the impetus behind the CHIPS and Science Act that poured billions of dollars into semiconductor manufacturers to build capacity in the U.S., according to Froman of the Council on Foreign Relations.

CFIUS has spent increasing resources on reviewing Chinese-related transactions, according to two lawyers familiar with the panel, who spoke on condition of anonymity to discuss its workings.

Staff work at a Toyota Motor factory in the U.S. The automaker is one of multiple Japanese businesses that have accelerated investment in the world's biggest economy. (Photo by Toyota)

Trump has recently been receptive to the idea of having Chinese automakers open factories in the U.S., rather than have Chinese factories in neighboring Mexico ship cars to America.

Yet it was under Trump's first presidency that the authority of CFIUS was strengthened and expanded to include real estate transactions and certain noncontrolling investments in businesses that involve critical infrastructure or sensitive data.

During Trump's first term, a Chinese-backed bid to take over U.S. firm Lattice Semiconductor was blocked, and Chinese tech business Beijing Shiji Information Technology was ordered to divest itself of American cloud-based software StayNTouch.

As Nippon Steel discovered, though, the approach of blocking certain deals perceived to have national security implications stretches beyond China. Singapore's Broadcom was also barred from buying out U.S. chip specialist Qualcomm in 2018.

U.S. Steel has been operating its Mon Valley plant since its inception in 1901, when Andrew Carnegie sold the Carnegie Steel Company. The plant employs more than 3,000 people. (Photo by Yuki Nakao)

Some observers are closely watching what they say is an emerging divide within Trump's team that will determine exactly how far the administration will go with protectionism.

Already supporters of the Make America Great Again movement, Trump's core support base who want a harder line on all forms of immigration, have clashed with tech titans led by Tesla CEO Elon Musk over work visas for foreign skilled workers. Musk is now a key collaborator of Trump's.

Meanwhile, Treasury secretary nominee Scott Bessent hails from the private financial sector. The prominent hedge fund investor, who will chair CFIUS if his position is confirmed by the Senate, may bring a "little more" predictability on the way foreign investment is dealt with, according to Aimen Mir, a former CFIUS official who is now a partner with law firm Freshfields in Washington.

"We'll be very interested to see how the next Treasury secretary views the committee and its mandate," said Mir. "I think that will have probably the greatest impact on whether CFIUS heads increasingly in a protectionist direction or adheres to a more recognizable interpretation of national security."

These factors combine to leave Nippon Steel in the crosshairs for Trump's handling of FDI's intersection with national security concerns.

And businesses globally will be closely watching which direction he will take, Nippon Steel Vice Chairman Takahiro Mori wrote in an opinion commentary for The Wall Street Journal.

"The U.S. has built a welcoming environment for foreign investment, but the world is watching this deal closely. Major companies in allied nations want to invest in the U.S. and employ Americans. Now they wonder if they'll be treated as partners or political pawns."