Summary
Because extreme rates threaten US consumer prices, supply chains and a political blowback. A panicked response can be costly. If US trading partners h…
Last month, US President Donald Trump announced a US$200 billion tranche of the deal with no South Korean official present. Blindsided, Seoul restated its “commercial viability” clause. Trump’s response was blunt. “If they don’t want to do it, that’s OK with me. I’ll just charge them more,” he told reporters. “Tell them if they don’t sign shortly, I’m going to double it up.”
For South Korea, the numbers are sobering: US$350 billion represents 18 per cent of its annual gross domestic product. Even if much of it is channelled through loans, guarantees and corporate outlays, it risks upward pressure on the won, crowding out domestic investment and political exposure if projects underperform.
The episode offers three lessons for every trade-reliant economy tempted to placate Washington.
The first is that appeasement is no strategy – it only invites more exploitation. Seoul’s pledge includes a clause requiring that the investments be “commercially reasonable”. The Alaska liquefied natural gas project in Trump’s announcement was abandoned by private investors in 2016, yet it is now presented as a done deal with Korean funding.
This pattern extends beyond South Korea. Trump has extracted an estimated US$5 trillion in investment pledges globally. Earlier this month, he threatened up to 300 per cent tariffs on nations reneging on their US investment pledges.
Crucially, many US threats appear to be bluffs. After threatening Brazil with Section 301 tariffs, Washington declared in July a 25 per cent levy, but two-thirds of goods from Brazil are exempted. The 100 per cent tariff on pharmaceutical products announced this year is phased and riddled with carve-outs for 20 jurisdictions including India. Why? Because extreme rates threaten US consumer prices, supply chains and a political blowback.
A panicked response can be costly. If US trading partners had chosen serious negotiations over hasty deals, and if talks had dragged on until the Supreme Court’s February strike-down of Trump’s “reciprocal tariffs”, would they still have handed over such egregious concessions?
Lesson two is that dependence itself is a point of failure. South Korea’s predicament stems from a dual lock: the US military umbrella and market access. This gives the United States leverage.
The European Union caved in largely because of defence abandonment fears. Brussels locked in massive investment and energy commitments despite the Supreme Court ruling, ignoring a legal escape hatch in favour of Nato cover and car sales. Japan bowed to avoid hefty auto tariffs because the US is its largest export market. Gulf states traded oil access for security – only to find that the US umbrella came with holes.
In reality, every dollar nations scramble to hand to Washington tightens their noose. If Trump succeeds in pocketing this massive forced capital transfer, it will only deepen his victims’ dependence, making them more vulnerable.
The way out is to pivot away from US dependency and diversify markets. This strategy is not about confrontation; it means reducing economic and security ties to Washington, stripping it of the leverage to dictate terms. The pain of the pivot is real, yet it is the only sustainable exit.
Canada stands out as an example. Despite over two-thirds of its exports going to the US, Ottawa hit back with counter-tariffs, expanded trade outreach to Indo-Pacific markets and joined the EU defence procurement mechanism. Prime Minister Mark Carney visited Beijing in January – the first by a Canadian prime minister since 2017 – to cut the US economic leverage.
Lesson three is that collective action is indispensable in countering Washington’s extortion. Trump’s tariffs work because his targets negotiate individually, each hoping to be spared the worst. His playbook – bilateral deals, tariff snapbacks, calibrated threats – is designed to keep countries divided.
Nations must stand together and safeguard the World Trade Organization’s most-favoured-nation principle, which Trump’s administration chips away at.
Collective action is also needed in complementary areas: coordinated legal challenges at the WTO, aligned counter-tariffs, responses to secondary sanctions, emergency swap lines and a commitment not to turn against one another. A 300 per cent tariff threat loses its potency when major economies call its bluff. The US still matters – its market, capital and security guarantees carry real weight. But it has less power when facing a coordinated bloc.
South Korean leaders may now be lying awake at night calculating the price of a signature. Other US trading partners would be well advised to do their sums.
Rather than facing US pressure alone or seeking watered-down bilateral bargains, targeted collective action will be what holds the line and finally forces an overreaching Washington to meet its match.
Source: South China Morning Post
