The Trump administration has pressed many US allies to invest in US industry and infrastructure projects in return for relief from high tariffs. The pledges total more than $5 trillion. But many of the announced commitments to fulfill President Donald Trump’s “America First” agenda appear ambitious, and some strain credibility.
Countries enlisted in the administration’s agenda vary in their capacity to fulfill their pledge amounts. Switzerland and Japan appear relatively well positioned to pay for their pledges. Yet several Gulf Cooperation Council (GCC) countries, who have collectively pledged nearly $4 trillion, appear less likely to meet the full pledged amounts without adjustments to their external balances.
An illustrative “ability to pay” metric assumes countries can divert 25 percent of their outward foreign direct investment (FDI) flows, imports, and international asset holdings from the rest of the world to the United States. For each economy, the metric is calculated relative to the size of the pledge. Pledges are converted into an annual amount by dividing the total by the time horizon. If the horizon is unknown, it is assumed to be 10 years.
For Japan and Switzerland, the pledge amounts are significant but perhaps achievable through reallocation of existing foreign investment flows and deploying international assets. South Korea has more limited financial capacity but could source a greater share of its imports from the United States. For most GCC countries, however, the commitments are large relative to their economic resources. Saudi Arabia appears capable of meeting its targets with some difficulty, but the United Arab Emirates and Qatar will have to shift their balance of payments considerably and possibly resort to debt financing as an alternative means to fund their pledges.
This PIIE Chart is adapted from Gregory Auclair and Adnan Mazarei’s Policy Brief, The America First Investment Pledges: How Are They Structured and Are They Realistic?
Data Disclosure
This publication does not include a replication package.
