US President Joe Biden's blocking of Nippon Steel's proposed acquisition of US Steel is likely to be challenged in court, and has prompted concerns about future capital flow into the United States and the unfair treatment of Washington's allies, according to analysts.

Sources close to the matter said on Saturday that Nippon Steel is planning to file a lawsuit in response to Biden's decision, Kyodo News reported.

Biden said in a statement on Friday that "as a committee of national security and trade experts across the executive branch determined, this acquisition would place one of America's largest steel producers under foreign control and create risk for our national security and our critical supply chains".

Nippon Steel secured a deal to buy US Steel for $14.9 billion in December 2023. The Committee on Foreign Investment in the US, or CFIUS, submitted its final evaluation of the transaction on Dec 23, 2024, cautioning that Nippon Steel's acquisition of US Steel could potentially reduce domestic steel production, thereby posing risks to US national security, The Washington Post reported.

Nippon Steel and US Steel rejected the claims, stating that Biden's order lacked credible evidence of a national security issue and was clearly politically motivated.

Biden's decision could cause companies to reconsider future investment in the US, Japanese daily newspaper The Asahi Shimbun reported.

Nippon Steel and US Steel said that Biden's objection "sends a chilling message to any company based in a US allied country contemplating significant investment in the US", and the companies vowed to take all appropriate action to protect their legal rights.

In a joint statement issued on Friday, the two companies said: "We are dismayed by President Biden's decision to block Nippon Steel's acquisition of US Steel, which reflects a clear violation of due process and the law governing CFIUS."

Hidetoshi Tashiro, chief economist at Infinity LLC, said: "Biden's decision makes it clear that what the US expects from Japan is for Japan to unconditionally allow the stationing of US military forces within its borders while continuing to be the largest foreign holder of US Treasury securities. ... It reveals that Japan is not permitted to freely invest in the US. This highlights the inequitable nature of the Japan-US relationship and renders its continuation unsustainable."

Biden has long opposed Nippon Steel's proposed acquisition of US Steel. Likewise, US President-elect Donald Trump has made clear that he would not approve the deal.

The United Steelworkers union has been a vocal opponent of the acquisition. During the run-up to the 2024 US presidential election, both candidates courted the union's support, highlighting the need to protect union members' jobs, said Kazuyuki Hamada, an international political economist and former parliamentary vice-minister for foreign affairs of Japan.

Hamada said that Japan's nonintervention stance on private mergers and acquisitions has allowed Nippon Steel to conduct negotiations with US Steel without adequately engaging with labor unions. Instead, the company relied on legal representatives, overlooking critical labor perspectives and ultimately inviting US government intervention, he added.

The US has a history of prioritizing its own interests at the expense of its allies, as seen in actions like the Plaza Accord and its crackdown on Alstom, a French power and transport group, according to observers.

Despite the setbacks, Nippon Steel has not abandoned its acquisition plan. Tashiro, the Infinity LLC chief economist, suggested that Nippon Steel might turn its attention to acquiring a less prominent US steel company with a more ordinary name than "US Steel".

"However, if such attempts continue to be blocked on political grounds under the pretext of national security, Nippon Steel may seek to build state-of-the-art facilities independently in China, similar to Tesla," he said.

According to The Asahi Shimbun, US Steel, which is currently undergoing operational restructuring, could face an existential crisis without investment from Nippon Steel.