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The world’s response to America’s Revolution
Last week, I wrote about the political revolution that President Donald Trump has launched in the United States and how it has made America a fundamentally unreliable player on the world stage.
This week, I’ll take on another question I detailed during my recent “State of the World” speech in Tokyo: How can/should the rest of the world respond to this new reality?
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When dealing with a leader of the world’s most powerful country who ignores counsel and acts on impulse, most governments will have to avoid actions that make Trump-unfriendly headlines. (Looking at you, Doug Ford.)
This is the logic that led Canada to surrender on its plan to impose a digital services tax earlier this year, and why a TV ad aired by the province of Ontario using clips of Ronald Reagan to criticize Trump’s tariffs was hastily taken down when the US president got angry. It’s why Japan was wise to make unilateral concessions on Nippon Steel and automotive tariffs. To safeguard their national interests, if a fight can be avoided, other governments should avoid it – by whatever means necessary. Let the spotlight of Trump administration hostility fall on others.
Many US allies have moved to proactively limit damage from any future fight with the White House. The United Kingdom, the European Union, and a number of Southeast Asian countries have offered non-reciprocal trade deals. See also Saudi Arabia, the UAE, Argentina, and El Salvador.
From governments that have much more bargaining leverage – like China, Russia, and India – we’ve seen that standing up for yourself and a willingness to absorb punches can create needed space. That strategy won’t work for everyone. Japan, South Korea, Mexico, Brazil and many others need to stay on a positive track with Washington.
But all countries, whatever their current relationship with the White House, will need to build their own long-term capacity and reinforce their own stability – to become more economically dynamic and competitive for the future.
That’s China’s current approach. Beijing has also doubled down on its support for existing international institutions, in part because it calculates that an American step-back will create new opportunities to change them.
In short, when faced with an America that’s become a more unreliable player on the global stage, one that can’t be counted on to safeguard allies who have underinvested in their own security, the right strategy is defense first, hedge second.
Just as Russia’s invasion of Ukraine persuaded Europeans to quickly reduce their own dependence on Russian energy, European governments want to avoid finding themselves at the mercy of shifting policies from Washington.
America’s traditional allies will have to regain their competitive position. That means a focus on growth, robust industrial policy, streamlined regulatory and bureaucratic authorities, and expansive investment in new technologies. They must attract and invest in entrepreneurship, assert more diplomatic leadership internationally, and accept responsibilities in building multilateral architecture.
Models already exist. In particular, there is Mario Draghi’s crucial competitiveness report for the European Union. On a smaller scale, there is Mark Carney’s thoughtfully crafted “Canada Strong” plan. Most every global leader should be thinking in these terms.
It’s easier said than done. The near-term politics of making these transformations is daunting. The EU is not a single state, and Europe's need for consensus rulemaking and pushback from more euro-skeptic governments (which could arrive even in France and Germany in the next election cycle) pose an enormous challenge.
There will be opposition from the fast-rising Reform Party in Britain and some provincial governments in Canada.
But once all these economic, political, security, and diplomatic investments are made, America’s unreliability, in the years well beyond Trump, will matter less.
As for hedging…
- Europe has committed to spend much more money on its own defense and to address the security coordination problems NATO will suffer without clear US leadership.
- The Saudis have signed a nuclear deal with Pakistan to hedge against any future security neglect from Washington, and there’s already more defense and intelligence-sharing among Gulf States.
- India’s Narendra Modi is working hard to stabilize his country’s relations with China and to temper their rivalry.
- The EU has finalized three free trade agreements — with South American bloc Mercosur, Mexico and Indonesia — and is working toward an agreement with India.
- Mercosur sealed a free trade deal with the European Free Trade Area, four European countries outside the EU. It has restarted negotiations with Canada.
In short, the defense and hedging strategies are well underway and likely to succeed to varying degrees in various places over time – though we should be more skeptical about even a medium-term turnaround in competitiveness.
We’re now living in a post-American order, with no one willing or able to fill the vacuum. China has its own problems and isn’t about to bite off more than it can chew. Which means a deeper G-Zero world, leading to more conflict, inflicting more damage, and lasting longer.
This trajectory isn’t sustainable. During the Cold War, it took the Cuban Missile Crisis to convince leaders that armed confrontation would be catastrophic – and that new communication channels and agreements were essential. We don't know what form “the crisis we need” to build a new order will take this time. But it's coming.
Until then? The old rules don’t apply anymore, and new rules haven’t been written yet. We must brace for sustained turbulence.
A logo of Nippon Steel is pictured in Chiyoda Ward, Tokyo on March 15, 2024. US President Joe Biden opposed planned sale of U.S. Steel to Nippon Steel, a Japanese Firm, on March 14th.
Biden expected to block Nippon Steel deal, citing national security
President Biden is expected to block Nippon Steel's $14 billion acquisition of US Steel on national security grounds, with his decision expected as early as Friday. This expansion of executive authority could significantly impact US foreign investment practices and strain relations with Japan, a key ally and major investor in the US.
Background: The Committee on Foreign Investment in the United States expressed concerns that the deal could threaten national security by potentially diminishing American steel production. While CFIUS did not make a formal recommendation, they questioned whether Nippon's global business interests might override their commitments to invest in US Steel.
Nippon Steel has strongly contested these concerns, accusing the White House of overreach in the process and arguing that CFIUS's concerns were based on inaccuracies and unfounded hypotheticals. The Japanese company has threatened to pursue legal action if the deal is blocked. US Steel continues to support the acquisition.
The decision comes after the deal has been swept up in election year politics and marks a departure from America's traditionally open investment environment, potentially affecting future foreign investments in sensitive US industries.
US President Joe Biden speaks to members of the media on the South Lawn of the White House after arriving on Marine One in Washington, DC, US, on Monday, Sept. 2, 2024.
Report: Biden set to reject US Steel deal
Nippon Steel is playing its hand close to its vest and hasn’t commented on the reports of the deal being blocked. Its nearly $15 billion offer was approved by US Steel shareholders in the spring, and it would be highly unusual for a company from a close ally like Japan to be prohibited from investing in the US.
Shares in US Steel fell by roughly 18% on Wednesday’s news, trading around $29, well under the $55 per share value that Nippon Steel offered in December 2023. The company warned thousands of jobs were at risk in the key — if not downright determinative — swing state of Pennsylvania should the deal fall through. Nonetheless, Democrats are betting that this decision will help them win the state by playing up protectionist bonafides. We’ll see if the theory holds.
Thick plates of steel for use in construction and ship building are hot-rolled by machinery at the Nippon Steel Corp. Kimitsu steel mill in Kimitsu, Japan near Tokyo February 6, 2008.
Biden slams Nippon Steel deal — but Tokyo plays it cool
US President Joe Biden on Thursday came out against Japan’s largest steel producer acquiring Pittsburgh-based US Steel, saying America must “maintain strong American steel companies powered by American steelworkers.”
Nippon Steel made an offer worth over $14 billion in December, and shortly afterward the White House indicated it would be scrutinized by the Committee on Foreign Investments in the United States. For now, the deal is still on, but CFIUS review is usually reserved for deals involving companies from potential adversaries – not from trusted allies like Japan — and presidents rarely comment before the committee finishes.
But this is 2024. Biden and presumptive GOP nominee Donald Trump are battling over blue-collar workers in key swing states like Michigan and Pennsylvania in November. Trump promised to block the deal “instantaneously” during a meeting with Teamsters earlier this year, and Biden has never been shy to flex his union bona fides.
How does Tokyo feel? Discretion seems to be the better part of valor for Prime Minister Fumio Kishida.
“Tokyo understands that in love and politics, timing is everything and that the political timing of this deal is awful for Biden,” says Eurasia Group’s Japan analyst David Boling. “That doesn’t mean that Tokyo is happy that Washington is treating an ally this way. But it’s not putting up a big fuss.”
An entrance to the U.S. Steel Great Lakes Works plant is seen in Ecorse, Michigan, U.S., September 24, 2019. Picture taken September 24, 2019.
Nippon Steel’s US deal may be good business, but it’s bad politics
The Global Business Alliance, a group of multinational corporations, is urging the Biden administration to keep politics out of any national security review of Nippon Steel’s offer to buy U.S. Steel — but politics is precisely the problem.
The deal: Japan’s largest steel producer is offering over $14 billion to buy U.S. Steel, and on paper, it shouldn’t be a particularly painful process. The offer is a nice premium over where U.S. Steel’s stock is currently trading, and as Japan is among the US’ closest allies, under normal circumstances, government oversight would be only routine. So why did Nippon Steel have an executive in Washington last week to meet with concerned lawmakers?
Because this is 2024. U.S. Steel owns major plants in Michigan and Pennsylvania, two states US President Joe Biden must win in November to secure re-election – and the United Steelworkers union is mad enough to spit. Neither U.S. Steel nor Nippon Steel consulted the union as the deal was being negotiated, and union leadership is hammering management for selling out to a foreign-owned company.
So rather than a swift approval, Biden (and, it should be said, a bipartisan group of lawmakers) has expressed support for a review through the Committee on Foreign Investment in the United States, an agency set up to safeguard national security in major deals by foreign-owned corporations.
And, gosh, who knows how long that could take? GZERO’s crystal ball keeps pointing to a resolution sometime after Tuesday, Nov. 5.