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(Bloomberg) — (Bloomberg) — For months, United States Steel Corp. argued that selling out to Japanese-owned Nippon Steel Corp. was the only way to survive. President Joe Biden thought different, concluding that even a takeover by a company based in close ally Japan wasn’t enough to allay national-security concerns.

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Such is the new politics of global trade and investment.

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In blocking the deal Friday, Biden pointed to what he said was “credible evidence” that Nippon Steel’s $14.1 billion bid would “create risk for our national security and our critical supply chains.” He didn’t say what the evidence was, though he invoked the Defense Production Act, which gives the president power over the economy to ensure the supply of critical goods.

That Cold War-era law Biden cited has been used to ensure the supply of military equipment. It was a further reminder of how Biden, following in the footsteps of former President Donald Trump, has taken a more expansive definition of what constitutes a threat to US national security, especially when it comes to trade and investment.

“It’s unusual to declare a friend and ally a security threat, which is what he’s done,” Bill Reinsch, a Commerce Department official during the Clinton administration and now a senior adviser at the Center for Strategic and International Studies, said in an interview. “It does seem that the definition of national security is getting broader than it used to be.”

Japan is one of America’s closest allies. The US bases about 50,000 troops there, and it’s a key US partner in the push to check China’s regional ambitions. As if to underscore the point, the State Department just approved the sale of air-to-air missiles to Japan in a deal worth up to $3.64 billion.

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Whatever the reason, former officials and experts said the decision signals how sharply the US has turned away from the principles of globalization that were a hallmark of US trade and investment policy well into the mid-2010s. The US has relied on the vaguely defined idea of national security as part of that shift.

There was also the undeniable political element given that US Steel is based in the swing state of Pennsylvania and the potential sale became a political flashpoint during the US presidential election campaign. That was exacerbated after the influential United Steelworkers union came out against the deal.

“When the president or others in the administration use national security reasoning to justify certain actions, they’re also able to define it how they would like,” said Sarah Bauerle Danzman, a resident senior fellow at the Atlantic Council’s GeoEconomics Center’s Statecraft Initiative.

It’s not just the US. One study from Council on Foreign Relations analysts Benn Steil and Elisabeth Harding tracked how the Trump and Biden administrations — followed by many other countries — had increasingly relied on national-security exceptions at the World Trade Organization to block actions they opposed.

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While countries had once used such exceptions to block highly sensitive items, “they are now being used regularly to justify trade restrictions on innocuous items such as cocoa beans, alcoholic beverages, animal feed, lighting products, and doorframes,’ Steil and Harding wrote.

US officials defended Biden’s decision, with White House spokeswoman Karine Jean-Pierre saying the move had nothing to do with Japan but was about how “US Steel is going to stay American-owned and American-operated.” Trump had also pledged to block the deal.

Foreign direct investment in the US continued to rise in 2023 — driven in large part by Japan — but champions of more inflows worry about the signal the US Steel decision will send, especially when such a move would normally be reserved for heading off investment by adversaries such as China.

The decision risks deterring other foreign companies from growing their production in the US, John Murphy, who leads work on international trade at the US Chamber of Commerce, said in a statement. Japan is the largest source of foreign direct investment in the US, and the Chamber said that the nation supports almost 1 million US jobs.

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The outcome “could have a chilling effect on international investment in America,” he said. 

The Committee on Foreign Investment in the United States, a secretive panel that scrutinizes proposals by foreign entities to purchase companies or property in the US, was unable to reach a consensus on the sale last year. The committee, known as Cfius, sent the decision back to the White House.

The sale was opposed by members of the committee including the US Trade Representative’s office and the Energy Department, according to people familiar with the discussions, who asked not to be identified without permission to speak publicly.

The concern was that Nippon Steel might not be able to honor promises to maintain production capacity in the US, given potential pressure on the company from the Japanese government to produce at home, and economic incentives that have sent more steel production to lower-wage countries, one of the people said.

Many trade law experts expect Trump to employ the national-security justification even more when he returns to office later this month. He may use the International Emergency Economic Powers Act, which is based on the existence of an “unusual and extraordinary threat” to national security, to impose tariffs shortly after taking office –- particularly for Mexico and Canada on concerns about immigration and fentanyl.

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The act allows for tariffs to be put in place almost immediately, letting the president get around the need to consult with Congress, which under the Constitution has the power to set tariffs but delegated much of it to the executive office over the course of the past half century.

Trump in his first term also used so-called 232 provisions in trade laws – also based on national security concerns – to slap tariffs on steel imported from Canada and the European Union, affecting countries that were founding members in the 75-year-old North Atlantic Treaty Organization.

“You really want to be able to ensure that the government is using its pretty broad powers in a restrained way,” said the Atlantic Council’s Bauerle Danzman. “This particular use of CFIUS and national security strains credulity.”

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