How Trump’s second-term tariff threats are turning trade partners into big-spending investors

How Trump’s second-term tariff threats are turning trade partners into big-spending investors

US President Donald Trump’s second-term trade strategy is taking a dramatic turn, as he uses tariff threats to extract massive investment commitments from key trading partners. In recent weeks, nations like South Korea, Japan, and the European Union have pledged hundreds of billions of dollars to secure continued access to US markets, the New York Times reported.

From threats to transactions

The Trump administration has moved from threatening high tariffs to using those threats as bargaining chips for financial gains. For example, South Korea avoided a 25% tariff on imports by agreeing to invest $350 billion in the US and purchase $100 billion worth of liquefied natural gas. In return, Trump reduced the tariff to 15%. Similar deals were struck with Japan and the EU, which pledged $550 billion and $600 billion respectively in US-bound investments.

Trade or coercion?

To many trade experts, these deals resemble coercion more than negotiation. "This is no doubt a global shakedown," said Scott Lincicome of the Cato Institute. While tariffs are easily enforced, investment and purchase commitments often are not. The EU's language, for instance, left room for interpretation, stating only that its companies had "expressed interest" in investing in the US.

Deals with unclear enforcement

Analysts point to a lack of specificity and enforceability in these promises. Japan’s commitment involves mostly loans, and South Korean officials reportedly expressed confusion over claims that 90% of profits would go to Americans. As Michael Froman of the Council on Foreign Relations asked, "If they don’t deliver the investment, do tariffs go back into place?"

An emerging market strategy?

Critics warn that the US risks adopting tactics common in unstable economies. Aaron Bartnick, a former White House official, noted, "If the US insists on acting like an emerging market, trade partners may start treating us accordingly." 2024 data showed only $151 billion in actual foreign direct investment in the US, far less than the new commitments suggest.

A showman’s negotiation style

Trump’s approach reflects his history in real estate and media. Negotiation expert Daniel Ames said Trump thrives on spectacle, suggesting foreign leaders might be inflating promises to appeal to the president’s ego. “If you’re negotiating with a narcissist,” Ames said, “you look for ways to make them feel like they’ve won.”

Uncertain gains, long-term risks

While Trump boasts of securing trillions in foreign investment, the true value and reliability of these deals remain murky. Without clear terms or accountability, the tactic may create short-term headlines but long-term uncertainty for US trade policy.