TIME TO STOP BASHING JAPAN

Nippon Steel Will Only Improve U.S. Steel

Recently, Japan’s Nippon Steel has made a bid to buy the American steel maker U.S. Steel. It may sound like two national champions squaring off, but the fact is that U.S. Steel is pleased to do the deal which will be at a price about forty percent above its present listed stock market value. U.S. steel executives have agreed to do the deal, but some U.S. Senators have voiced opposition and the U.S. Steel Workers Union has opposed the move saying that it violates the conditions of the collective bargaining agreement of 2022. It is asking the Biden administration to stop the deal as are some Senators who are raising national security concerns.

Before commenting on the takeover proposal and the debate, let me tell you a bit of my past. As part of my program for a master’s degree, I studied Japanese at Tokyo’s Keio University in 1963-65. Later in 1975-78, I worked in Tokyo as a partner in the Swiss consulting firm of Egon Zehnder International (head hunting) and then as President of Extra-Corporeal Medical Specialties Japan, a U.S. company that made artificial kidneys. My American-Chinese wife and I also adopted a Japanese baby boy to become our third child and second son.

You may recall that in the late 1970s, America began to experience what were called “trade frictions” with Japan as one Japanese industry after another ( textiles, autos, steel, machine tools, semiconductors, etc.) began to kill off its American rivals. In his campaign for the Presidency, Ronald Reagan said he would do something about stopping this “nonsense". In May 1981, I received an unexpected phone call from then Secretary of Commerce Malcolm Baldrige asking if I would be interested in working for him to solve this Japan problem. I was then Director of International Marketing at American Can Company based in Greenwich, Connecticut and making a decent wage. Baldrige was offering me a significant cut in pay, but, hey, I was young, I thought I understood the problem of U.S. trade with Japan and also felt some obligation to serve my country. So, I told Baldrige I could take a year leave of absence and lend a hand. Surely, I naively thought, I should be able to resolve these trade problems in a year.

Well, a year turned into six, and I did not solve all the problems, but I did earn a new name - “Japan Basher.” That label was invented not by the Japanese but by the likes of Newsweek magazine, the Washington Post, New York Times, and other prominent American journalists and economists. Of course, many Japanese reporters and analysts were not hesitant to adopt the term.

The moniker evolved out of a long battle in the United States between economists and journalists who claimed to be free traders and a smaller group of trade negotiators and executives trying to do business in Japan. The free traders attributed Japan’s great success to what they saw as its adherence to free trade doctrine and policies. The business leaders and trade negotiators knew that what had become known as the Japanese economic “miracle” had little to do with free trade on the part of Japan and a lot to do with industrial policy, currency manipulation, and mercantilist trade practices and policies.

Japan’s Ministry of International Trade and Industry (MITI) had an economic strategy that targeted certain industries like steel, machine tools, semiconductors, autos, shipbuilding, telecommunications, and more for development in Japan. This was part of the industrial policy as explained to me by former Vice Minister of the Ministry of International Trade and Industry Amaya Naohiro, the father of the policy. (Amaya also explained to me that U.S. advisers had told Japan to do any kind of industrial policy. But, said he, “we did the opposite of what the Americans advised.”) At Amaya’s direction, Japan’s industrial policy involved substantial state provided subsidies and low interest loans, protection of the domestic market from import competition, subsidies for exports, and manipulation of the dollar/yen exchange rate in order to keep the yen undervalued against the dollar. The combination of these government policies with the skill and dedication of Japanese business leaders and workers resulted in a formidable industrial juggernaut that was crushing all in its path.

I and my colleagues in the Reagan and later the Clinton administrations did all we could to counter Japan’s industrial policies and to salvage American technologies and key industries.

But that was then.

Now, a great debate is growing in America over the proposed buyout. Leaders like Senators Hawley of Missouri, Rubio of Florida, Vance of Ohio, and Fetterman of Pennsylvania have voiced concern about national security and opposition to the Nippon bid in terms suggesting that Nippon might in some way undermine U.S. steel production along with future technology developments. The Steelworkers Union says it is opposed to the deal because it doubts that Nippon will be able to cover all the obligations to the workers contained in the labor agreement concluded in 2022.

I can say and want to shout from the rooftops that far from harming the United States and U.S. labor, a Nippon acquisition of U.S. Steel would provide a big boost to the U.S. steel industry and also to the overall U.S. economy. The honorable Senators just happen to have the story all wrong. They should be cheering instead of complaining. Japan no longer has the kind of industrial policies that I was dealing with in the 1980s and Nippon Steel is more likely to increase U.S. Steel’s production than to reduce it while introducing new, advanced technology along the way.

Now, gentle reader, if an old “Japan Basher” like me says the Nippon proposal is a good deal, you can be sure that there is no good reason for the Senators or anyone else to oppose it.