News & Insights

Rising concern about geopolitical risk prompts spate of new offices in U.S. capital

KEN MORIYASU, Nikkei Asia diplomatic correspondent

As originally appeared on Nikkei Asia.

WASHINGTON — It was the wee hours of Jan. 16 when Rieko Shimizu clicked “send” on an email to her corporate headquarters in Japan. Like most Asian companies with offices in Washington, Shimizu, who represents Japanese drink maker Suntory in the U.S. capital, had quickly prepared a summary of the Iowa Republican caucuses that had concluded hours earlier.

Former President Donald Trump had won by a 30-point margin, and the implications were being digested across the world. A Trump victory in November’s presidential election could have a decisive impact on the U.S. economy, not to mention relations with some of Suntory’s other major markets, including India, the world’s biggest whisky consumer.

Shimizu had been posted to Washington only nine months earlier to head Suntory’s new Washington D.C. office, which opened amid a growing understanding that keeping abreast of developments in the U.S. is key to avoiding disaster and staying ahead of the curve in global business.

Japan’s largest whisky maker is one of many Asian companies that have recently opened offices or hired representatives in the U.S. capital. Other newcomers include Japan’s top semiconductor production equipment maker, Tokyo Electron; megabank Sumitomo Mitsui Banking Corporation; and South Korean conglomerate LG. Sony has reopened an office after an eight-year hiatus, and India’s Adani Group has hired veteran lobbyist Anurag Varma, a former India lead at the Washington lobby firm Squire Patton Boggs, to represent the company to U.S. policymakers.

Republican presidential candidate and former U.S. President Donald Trump came out on top in the Iowa caucuses on Jan. 15.    © AP

Many Asian companies have learned the hard way that a lack of access in Washington can be costly, particularly as the U.S. government ramps up the use of sanctions, notably against Russia in the wake of its 2022 invasion of Ukraine, and against Chinese companies and their foreign suppliers, seeking to buy advanced U.S. semiconductors and equipment.

South Korean chipmaker SK Hynix, for example, upped its presence in the U.S. in June 2022, appointing J.J. Yu as its first head of U.S. corporate and government affairs in an effort to mitigate risks that may arise as the U.S. and China slap tit-for-tat sanctions on each other’s chip industry.

Last year, for example, when China banned products from U.S. chipmaker Micron from key infrastructure projects, two U.S. congressmen sent a letter to Secretary of Commerce Gina Raimondo warning her not to allow South Korean chipmakers Samsung and SK Hynix to replace Micron’s sales in China.

SK’s move to the U.S., and that of other Asian companies, is also an effort to capture new business opportunities. As America moves away from its commitment to free-trade globalism and toward state-driven industrial policies enabled by subsidies, tariffs and blacklists, the landscape of business is shifting. The White House and Congress have begun to dole out incentives to U.S. and allies’ companies, with the aim of “onshoring” and “nearshoring” supply chains, meaning bringing more production home or putting it in friendly hands. The costs of being on the wrong side of such decisions can be astronomical, and being in Washington helps.

As the U.S. moves to a policy of “de-risking” and supply chain diversification, “This shift is creating new business opportunities, as Washington seeks to incentivize national security investments from domestic players,” said Eric Sayers, a managing director at Beacon Global Strategies, a strategic advisory firm in Washington that works with many Japanese and other Asian companies.

Several Asian battery producers and carmakers, for example, have begun to take advantage of access to tax breaks offered by the Inflation Reduction Act (IRA), introduced in 2022, to support companies building supply chain infrastructure for electric vehicles in the U.S., such as battery gigafactories.

The IRA, together with the 2021 Bipartisan Infrastructure Law and the 2022 CHIPS and Science Act, forms the basis of industrial policy under President Joe Biden, providing jumbo-size incentives, primarily for U.S. companies, but available to allies and partners as well. These include $52.7 billion for semiconductor research, development and manufacturing provided by the CHIPS and Science Act, and a $7,500-per-car clean vehicle tax credit under the IRA.

These incentives may not survive this year’s election, however, underlining the primacy of politics in business decision making. Trump has been openly critical of electric vehicles, saying, “The damn things don’t go far enough, and they’re too expensive.”

At an automobile parts plant in Clinton Township, Michigan, on Sept. 27, Trump vowed to scrap parts of the IRA on his first day in office. Speaking of the Biden administration’s focus on EVs, the former president said, “They want to go all-electric and put you all out of business. You know that, right?”

Japan’s Panasonic Energy is building an EV battery gigafactory in De Soto, Kansas, having taken advantage of U.S. tax incentives aimed at companies from allied countries. (Photo by Ryohtaroh Satoh)

Trump’s return to office would have consequences far beyond EVs. On the condition of anonymity, one Japanese corporate representative told Nikkei Asia that one option his company is examining if Trump prevails in November includes “unwinding” some of its commitments to reaching “net-zero” targets aimed at lowering carbon emissions.

During his presidency, Trump withdrew the U.S. from the 2015 Paris Agreement, which put countries on a path to achieve net-zero carbon emissions by midcentury. He has repeatedly called for more oil drilling in the U.S.

On Jan. 20, 2021, the first day of his presidency, Biden brought the U.S. back into the Paris Agreement, which in turn spurred Japanese companies to recommit to steep emissions-reduction targets.

“If the U.S. leaves the Paris Agreement again, China is likely to halt its emission-cutting efforts as well. Tackling climate change is important, but the honest people are going to pull the short straw,” said a representative of the same Japanese financial company.

Conflict aversion

The cost of being wrong about geopolitics was underlined for many Japanese companies by the experience of Jera, a Japanese energy company. In November 2021, Jera announced it would not to extend a 25-year liquified natural gas (LNG) contract with Qatar, citing developments in the global LNG markets, the progress of decarbonization, and the changing position of LNG in Japan partly due to the liberalization of power and gas as being factors in their decision.

Perhaps one factor Jera did not give enough weight to was the massive Russian troop buildup around Ukraine at the time. Three months later, Russia invaded, causing countries around the world to scramble for LNG on the spot market. Jera had to join the scramble.

Pro-Russian troops are seen outside the town of Volnovakha in Ukraine’s Donetsk region on March 15, 2022, shortly after Russia’s invasion of the country.   © Reuters

In hindsight, the White House had by October 2021 concluded that Putin was going to take action, based on satellite images, intercepted communications and human intelligence. The economic consequences of the Ukraine war — which caused spikes in energy and food prices, and saw pervasive financial sanctions against Russia — have emphasized the need for businesses to keep abreast of potential conflicts.

Many Washington offices, for example, have been tasked with deciphering whether the U.S. and China will go to war over Taiwan. Some experts expect the risk to be highest in 2027, the centennial of the founding of China’s People’s Liberation Army and the year President Xi Jinping faces the choice of staying on for an unprecedented fourth term as president.

Companies that believe war may be imminent would likely not put more money into China. But those that discount the possibility have a chance to curry favor with Beijing with new investments, at a time when most companies are thinking of reducing their footprint.

“The pace of change in the U.S.-China relationship in recent years has left many corporations facing persistent uncertainty about the trajectory of their global business activities and how they should position themselves for success,” Beacon’s Sayers told Nikkei Asia.

“Given the increasing coordination between Tokyo and Washington on a shared economic security agenda toward China, Japanese companies are turning to Washington-based advisers to help navigate this dynamic environment,” he added.

Another goal of representative offices in Washington, says Shintaro Shiba, Sony Group’s head of the Washington, D.C. office, is public relations. One of his goals, he says, is to create “Sony fans” in the nation’s capital. “Many people still know Sony for electronic products such as the legendary Walkman, but now more than half of Sony’s revenues come from our entertainment companies. Much of that content is made here in the U.S.,” he said.

Sony has faced challenges in the U.S. before. When it purchased movie studio Columbia Pictures Entertainment in 1989 there was an uproar on Capitol Hill. It was described as an invasion of Hollywood, and a Newsweek poll shortly after the deal showed that 54% of Americans believed that Japan’s economic power and unfair trade practices were a greater threat to the U.S. than the military power of the Soviet Union.

While U.S.-Japan relations have improved much since, and the two countries are key partners in the Indo-Pacific, the recent purchase of U.S. Steel by Nippon Steel for $14 billion, announced last month, for example, triggered strong opposition from lawmakers who say the American steelmaker should not be sold to a foreign company.

“Despite the initial challenges of the Columbia purchase, for the past 30 to 40 years, Sony has contributed to American culture through games, music and movies,” Shiba said, pointing to franchises such as Gran Turismo, Beyonce and “Spider-Man.”

“We would like the U.S. government to know more about these parts of our business, too,” Shiba said, “so that in times of crisis, decision-makers will look to Sony as a trusted partner.”

Top tier

Washington can be a daunting challenge for foreign companies unaccustomed to the copious unwritten rules of political gamesmanship in the U.S. capital. In Washington, the key currencies are time, access and information, and one lubricant for getting access to all of these is money — and lots of it.

Donating to think tanks is a time-honored way to open doors. Think tanks accept donations, and in return offer different levels of access to analysts, many of whom are former senior officials themselves.

For instance, one Washington think tank has four donation categories: platinum (up to $749,999), gold (up to $249,999), sapphire (up to $124,999) and emerald ($40,000 to $64,999). Platinum donors receive 24 meetings a year with scholars, and preparatory phone briefings ahead of major global events, such as a U.S.-China leaders meeting. Emerald members get three meetings a year.

The biggest companies have the luxury of donating to multiple think tanks at the highest level and can enjoy free access to experts. Companies with less to spend have to choose between gaining deeper access from one think tank or accessing multiple think tanks at the entry level and gathering what information they can. Some seminars are open to the public. Many Washington representatives listen to all public seminars and save their analyst meetings for special occasions.

At the Brookings Institution, for instance, the biggest Asian donors include Toyota Motor and Korea Development Institute, both in the $100,000-$249,999 category. At the Center for Strategic and International Studies, the biggest members include Samsung, NTT, Fujitsu, Hanwha, Hitachi and Mitsubishi Corp. in the $100,000-$249,999 group.

For those who desire a more tailor-made service, there are strategic advisory firms across the capital willing to help for a monthly retainer fee that usually starts around $25,000 and increases from there, depending on the scope of the work.

But money and lobbyists cannot solve every problem. Geopolitical alignment counts more than ever in recent memory, something that Japan and South Korea, U.S. military allies, have taken advantage of. Some Chinese companies, on the other hand, have giving up trying to make inroads into the U.S. market.

Being in Washington, for example, was not much of a help to Chinese technology company Huawei, which fell afoul of Congress over the last decade amid charges that its telecom equipment is a tool of Chinese espionage, something the company denies emphatically.

It had expanded its public relations and government relations efforts in North America in 2019, seeking to improve its image and secure the release of Chief Financial Officer Meng Wanzhou, who was detained in Vancouver, Canada, over alleged fraud in violating sanctions against Iran.

In 2021, Huawei hired veteran Democratic lobbyist Tony Podesta and three other lobbying firms to work on Meng’s release, as well as on easing sanctions, according to data from the nonprofit organization OpenSecrets, which sources its information on lobbying from the Senate Office of Public Records. The data shows the company spending $3.59 million on lobbying in 2021. By 2023, that figure had fallen to $1.46 million.

However, Huawei has since gradually dismantled its public relations and government relations teams in the U.S. and Canada, Nikkei Asia reported earlier this month.

“The world is shifting from globalization to fragmentation, and the international business environment is not what it used to be,” Sony’s Shiba said. “For years, we lived in a world with almost no tariffs. So companies would look around the world to find lower-cost locations to produce products.” Now, Shiba said, “We need to add another factor: geopolitics. … Companies have to take into account costs and risks that are nearly impossible to estimate.”