Trump's demand to trading partners: Pledge money or get higher tariffs

Boston Globe

5 hours ago

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The tactic was on display last week as Trump and his team rolled out a blitz of new trade agreements before a self-imposed Aug. 1 deadline.
'South Korea is right now at a 25% Tariff, but they have an offer to buy down those Tariffs,' Trump wrote on social media Wednesday. 'I will be interested in hearing what that offer is.'
The next day, Trump agreed to impose a tariff of 15 percent on imports from South Korea. The lower rate came after South Korea agreed to make $350 billion in investments in the United States and purchase $100 billion of liquefied natural gas.
South Korea is not the only country to make such pledges. Japan said it would establish a $550 billion fund for investments in the United States. The European Union indicated that its companies were poised to invest at least $600 billion.
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To trade experts, the commitments raise the question of whether Trump is negotiating with trading partners or trade hostages.
'This is no doubt a global shakedown of sorts,' said Scott Lincicome, vice president of general economics at the right-leaning Cato Institute. 'The fact is that Trump is using US tariff policy to effectively force these terms upon less-than-willing participants.'
But the vague nature of these informal commitments suggests that other nations might also be looking for creative ways to escape Trump's tariffs.
Although tariffs are relatively straightforward to enforce, investment and purchase commitments are not as easily policed. The EU, for instance, does not have the authority to dictate the type of investments that it has promised, and much of Japan's pledged investments are coming in the form of loans.
The investment announcements have also spurred confusion and lacked the usual detail that would accompany such pacts to avoid future disputes.
A large majority of the $350 billion South Korean investment would take the form of loans and loan guarantees. South Korean officials expressed confusion over what US officials meant when they said 90 percent of the profits from the investments would go to the American people.
A fact sheet announcing the EU's plans allowed for some wiggle room when it said that 'E.U. companies have expressed interest in investing at least $600 billion' in 'various sectors in the U.S.'
'I think there remain a lot of questions, including by the countries who have announced commitments, as to what those commitments actually really mean,' said Michael Froman, president of the Council on Foreign Relations, who served as the top trade negotiator in the Obama administration. 'Is it enforceable? If they don't deliver a certain amount of investment over a particular period of time, do tariffs go back into place?'
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During Trump's first term, the trade deal he struck with China included extensive commitments for Chinese purchases of American farm products that were never met. The agreement did have an enforcement mechanism, but it proved toothless.
Some of the initial investment pledges appear to be too big to be true. New data from the Bureau of Economic Analysis showed that in 2024, foreign spending to acquire, start or expand US businesses totaled $151 billion — a small fraction of the new commitments being announced. The $600 billion EU investment commitment matches the total value of the goods that the United States imported from Europe last year.
Although the United States has long been a magnet for foreign investment, the longer-term effects of making countries invest under duress are not clear.
'This is the kind of deal you'd more expect to see from an emerging market that can't attract capital on its merits,' said Aaron Bartnick, who worked in the White House Office of Science and Technology Policy during the Biden administration. 'And we may find over time that if the United States insists on acting like an emerging market, our trade partners may start treating us accordingly, with more onerous terms and less favorable rates that American companies and consumers are not accustomed to dealing with.'
Regardless of the economic implications, Trump's tactics show no signs of abating, as he regularly claims more than $10 trillion — and climbing — in investments from foreign companies and countries.
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Daniel Ames, a professor at Columbia Business School who teaches negotiation strategy, said that Trump's approach to trade deals appears to be drawn directly from his days as a developer and businessperson. Trump became notorious for destabilizing his negotiating counterparts with severely low bids, dazzling sales pitches and an ability to capitalize on weakness to gain leverage.
Ames noted, however, that the EU and countries like Japan and South Korea might also be playing into Trump's sense of vanity when they unveil whopping investment promises that might ultimately be hollow.
'Donald Trump is a gifted storyteller, and I think when his counterparts recognize this, they can play to it,' Ames said. 'If you're negotiating with a narcissist, you look for ways to make them feel like they've won.'
This article originally appeared in
.