US President Joe Biden has blocked the takeover of US Steel by a bigger Japanese firm, delivering on a political promise despite fears the move could hurt Washington’s relations with Tokyo and scare off other foreign investors.

Biden cited threats to national security in rejecting the Nippon Steel purchase, saying US ownership was important to keeping the US steel industry and its supply chains strong.

His intervention follows pressure from the United Steelworkers union, which had opposed a transaction that was a sensitive political issue in the 2024 US presidential campaign.

The Japanese government has called Biden’s decision “incomprehensible”.

Nippon Steel and US Steel said Biden’s decision showed the review of the deal had been “corrupted” for political gain.

The two companies, which had previously threatened to sue the government if the deal did not happen, on Friday said they would take “appropriate action to protect their legal rights”.

“We believe that President Biden has sacrificed the future of American steelworkers for his own political agenda,” the companies said in a statement, adding that the move sent “a chilling message to any company based in a US allied country contemplating significant investment in the United States”.

Japanese officials also said they were disappointed by the decision.

“There are strong concerns from the economic circles of both Japan and the US, and especially from Japanese industry regarding future investments between Japan and the US, and the Japanese government has no choice but to take this matter seriously,” Japanese industry and trade minister Yoji Muto said in a statement to Reuters.

Biden’s decision comes a year after Nippon Steel first announced the $14.9bn (£12bn) deal to buy its smaller Pennsylvania-based rival.

It raises significant questions about the path forward for the company, a 124-year-old name that was once a symbol of American industrial might but is now much diminished.

It spent months looking for a buyer before announcing the tie-up with Nippon Steel, the world’s fourth largest steelmaker, in December 2023.

US Steel has warned that it might have to close factories without the investment that would come with a new owner, concerns that had been echoed by some workers and local politicians.

The two companies had pledged not to cut jobs and made other concessions in an effort to win support for the deal. Just this week, they offered to fund a workforce training centre – and reportedly give the government the right to veto potential production cuts.

But the arguments failed to convince Biden, who had come out in opposition to the deal early last year, as election season heated up and with the key swing state of Pennsylvania poised to play a key role.

The transaction was also criticised by President-elect Donald Trump and the incoming vice-president, JD Vance, whose appeals to union workers formed a big part of their campaign message.

The US government panel charged with reviewing the deal for national security risks failed to reach a consensus by late December, leaving the decision to Biden, who was required to act within a 15-day deadline.

In his announcement on Friday he said foreign ownership presented a risk and ordered the companies to abandon the deal within 30 days.

“A strong domestically owned and operated steel industry represents an essential national security priority and is critical for resilient supply chains,” he said.

“That is because steel powers our country: our infrastructure, our auto industry, and our defence industrial base. Without domestic steel production and domestic steel workers, our nation is less strong and less secure.”

The United Steelworkers union called the decision the “right move for our members and our national security”, saying its opposition had been driven by concerns about the long-term viability of its industry.

“We’re grateful for President Biden’s willingness to take bold action to maintain a strong domestic steel industry and for his lifelong commitment to American workers,” President David McCall said.

Prof Stephen Nagy, of the Department of Politics International Studies at the International Christian University in Tokyo, called Biden’s decision “political”, noting that the administration from its start promised a foreign policy “for the middle class”.

“This was a direct response and continuation of the Trump MAGA agenda of Making America Great Again,” he said. “The Biden administration couldn’t appear weak on foreign businesses, whether it’s an ally or adversary.”

White House spokesperson John Kirby dismissed suggestions the move could damage American relationships with allies, saying Biden had made clear the decision was not “about Japan”,

“This is about US steel-making and keeping one of the largest steel producers in the United States an American-owned company,” he said at a press conference.

Shares in US Steel fell more than 5% on Friday.

But analysts said the move might not mark the end of the deal. Biden’s order says the Committee on Foreign Investment in the United States can extend the 30-day deadline to scrap the transaction.

Prof Nagy said he thought the companies could decide to try again under Trump, potentially offering different terms that would allow the new president to claim he had negotiated a better deal.

Political analyst Terry Haines of Pangaea Policy also said Trump, despite his criticism of the deal, might have reason to revisit the decision.

“One of the things that’s difficult about this decision is that Japan is a very close US ally,” he said. “The government’s got frankly a big evidentiary burden in order to justify what they’re doing today – and it hurts bilateral relations with Japan, something Trump will want to avoid.”