- They would likely face demand for more purchases from the US and investment in the US.
- Voluntary restriction of import from China and export restriction to the US could be on the table.
- Currency appreciation against the USD, a la Plaza Accord, is likely to be demanded.
- Nations might even face pressure to mirror US tariffs on China.
- These demands could generate considerable backlash and risk negotiation to fail.
Related Insights
Commentary: Dimensions of US negotiations
Many nations are making overtures to the US to find a more lasting respite from the high “reciprocal” tariffs than the prevailing 90-day pause. As they engage Washington, we see six types of demands coming their way.
- Buy more from the US. This might be the most obvious and anticipated demand, with the likes of India and Vietnam taking pre-emptive promises to reduce tariffs on US imports, as well as purchase more US goods (agriculture, energy, aviation, and defence equipment are the most cited areas).
- Invest more in the US. From Nvidia to Novartis, TSMC to Hyundai, many multinational companies have announced multibillion-dollar investments in the US. We are sure these examples will be referenced during trade negotiations, and the US side would demand additional pledges from countries.
- Sell less to the US. This is where matters begin to become tenuous. With its fixation on trade balances, US would demand a narrowing of deficits through a variety of channels. One would be a voluntary restraint on exports. This would most prominently feature during negotiations with countries like Vietnam, with their burgeoning imbalances vis-à-vis the US.
- Buy less from China. The US administration is adamant to reduce transshipment of made-in-China goods and equipment. We envision demands of import restraint as part of this strategy.
- Appreciate FX against the USD. The Plaza Accord—a coordinated agreement in 1985 that entailed FX market intervention to appreciate the Yen and Deutsche Mark, is finding resonance in parts of the Trump administration. US may demand countries to prop up their currencies against the USD in the event tariffs cause their currencies to face selling pressure.
- Mirror US tariffs on China. If the ultimate target of this entire exercise is China, the US could push to extend the tariff moat beyond its border. The US could go so far as to demand that to be in its circle of trade, countries would have to mirror its tariffs against China. A country like Mexico may see that as the price of remaining in USMCA.
There could be other elements. Countries with US military presence may be asked to pay more for the cost of running those operations. But that would be a case for some, not most countries in the region. Finally, the US could even demand a “user fee” for holding US assets or receiving the benefits of the US security umbrella around the world.
All these demands may make sense from the perspective of the Trump administration, but most are unlikely to go down well with many governments. Some would see these as infringement on their sovereignty, finding the cost of the doing business intolerably high. Others may see strong reaction from the local population, who may shy away from purchasing US goods and services, or for that matter no longer see the US as a place to travel for tourism, education, or immigration purposes. US has economic and military might, but it risks an erosion of its soft powers due to a ratcheting up of coercive policies.
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