The Investment Trump’s Trade Agenda Demands

The administration has laid strong foundations for revitalizing the U.S. industrial base. But the next steps can’t wait.

Strategic-sector investments were not the main focus of the “Liberation Day” tariff announcements of April 2, 2025. A year later, however, efforts to support such investments—both through trade agreements and expanded domestic financing capabilities—may be the most promising developments to result from that chaotic episode.

The most aggressive Liberation Day tariffs were suspended just seven days post-introduction as markets crashed, and the Supreme Court later rejected the legal basis for many of the remaining levies, finding that the International Emergency Economic Powers Act (IEEPA) does not allow the president to impose tariffs. This legal uncertainty has been further compounded by questions about whether President Trump will unilaterally alter trade policies, including deals recently struck by his own administration, in the service of various unrelated negotiations. The indiscriminate nature of Trump’s tariffs has also meant that much of the manufacturing equipment needed for rebuilding U.S. industry, which for the foreseeable future must be imported, has become more expensive, exasperating many intended beneficiaries in manufacturing sectors.

Nevertheless, U.S. trade negotiators reached two major agreements with Japan and South Korea that appear durable and could prove transformative. These agreements feature novel commitments from the counterparties to invest in American strategic industries in exchange for lower tariff rates. The Japan and Korea deals thus address a major cause of the offshoring of these industries—their relative unattractiveness to U.S. financial markets—in addition to conventional trade policy concerns such as market access.

Japan agreed to invest $550 billion and Korea $350 billion into projects that “advance economic and national security interests,” with $150 billion of Korea’s commitment earmarked for shipbuilding. The Korea deal also includes a $20 billion annual cap on investment to mitigate currency risks; the Japanese are likewise expected to maintain a reasonable annual limit, though no official figure has been announced. Both Japan and Korea’s investments will presumably involve their state development banks along with private sector actors. In both deals, a “consultation committee” will identify potential investments, and an “investment committee” chaired by the U.S. Secretary of Commerce will make investment recommendations to the president.

The memoranda of understanding outlining these deals stipulate that the cash flow from such investments, after allowing for an agreed upon interest rate, will be split 50-50 until the investment has been repaid. Following repayment, the United States will receive 90% of the cash flow. The United States has also committed to expedite regulatory processes and support the projects through use of federal lands, procurement and offtake agreements, and other forms of assistance. Japan and Korea are allowed to use suppliers and vendors from their own countries to the greatest extent possible.

Essentially, these investment deals allow foreign counterparties to reduce their tariff burden by substituting investment obligations that offer at least some mutual benefit. Meanwhile, the United States can reap many of the rewards of increased tariffs without the upfront costs of imposing a tax on imports. Insofar as the goal of tariffs is ultimately to promote investment in domestic industry, they do so by altering profit incentives.

But the investment may not materialize if businesses see the tariffs as politically or legally fragile or otherwise subject to change. Moreover, today’s financial markets and corporate investment dynamics operate differently than they did in America’s nineteenth-century tariff and industrial heyday, as readers of American Compass publications are doubtless aware. Tariffs do not directly address these internal obstacles to investment, but foreign investment commitments do. Such investment commitments can also facilitate technology transfer to the United States and give foreign trading partners a long-term stake in America’s industrial revival.

To be sure, investment commitments alone cannot address certain trade challenges: investments in critical minerals facilities or shipyards will inevitably fail if they are consistently undercut by subsidized foreign competition. Yet properly targeted investment commitments can create positive dynamics here as well, introducing a carrot along with the stick. Strategic joint ventures with allies do not preclude tariffs and other protective measures against rivals who engage in the most predatory and damaging trade practices. The investment option, then, encourages a healthy “race to the top” among trading partners: those who make significant investments in U.S. strategic sectors can be rewarded; those who do not will face steeper tariffs. Either way, long-term investments in U.S. strategic industries are supported and, in some cases, accelerated.

These agreements, then, hold significant promise in theory, but what are the results so far in practice? The first investment projects to go forward under the Japan deal were announced in February of this year. These include a natural gas power plant in Ohio ($33 billion), a deepwater crude export facility in Texas ($2 billion), and a synthetic industrial diamond facility in Georgia ($600 million).

On the one hand, these projects demonstrate concrete progress on the Japan deal struck in July 2025. On the other, the strategic value of most of this initial round of financing is questionable. While the United States certainly needs more energy generation, natural gas power plants are easily financed through conventional structures in private markets. (In this sector, addressing issues such as multi-year turbine backlogs and grid supply-chain challenges would be more worthy objectives of government-guided investment.)

Likewise, the financing of energy export terminals is primarily driven by guaranteed offtake agreements. Japan could simply have made long-term purchase agreements for fuel, and commercial banks and bond markets would have supplied most of the capital at reasonable interest rates. In these cases, it is difficult to avoid the conclusion that investments which would have occurred anyway are simply being relabeled as strategic with little incremental benefit to U.S. industry.

Other problems around the project selection and negotiation process have also arisen. The Financial Times recently reported that Japanese officials intervened to cut Softbank’s fee for developing the Ohio powerplant by more than 90%, while also adding performance criteria. That fee was intended to compensate Softbank for developing the project because the firm otherwise has no equity in it (the project is split between the U.S. and Japanese governments). But a minority or nonvoting equity stake or other performance-based structures would almost certainly have provided better incentives than the flat fee that U.S. officials apparently agreed to initially.

Furthermore, Softbank is an investment holding company with no meaningful expertise in developing natural gas power plants. It would make far more sense for Softbank to provide private capital to support the project in partnership with the government actors rather than to earn a fee as the developer. As the FT observed, the dispute over the fee “reflects a fractious atmosphere in Tokyo, where officials fear Japan is getting edged out of selecting projects for the trade agreement and railroaded into backing companies that lack the necessary experience.”

Such concerns are not limited to this one project and seem to find their way into media reporting with troubling frequency. In a recent Politico article, administration sources noted that Commerce Secretary Howard Lutnick has “developed a reputation for jumping into deals on subjects on which he has little expertise and not enforcing follow through with companies and countries…. Lutnick just chases a headline.”

In fact, it has become something of an open secret in the corporate community that the easiest way to deal with the Trump administration is to promise splashy numbers without any plans to actually deliver on them. Disturbing commentary in Japanese and Korean policy circles suggest that at least some forces in these governments expect to play a similar game. By moving as slowly as possible and focusing on the lowest-risk projects to buy time, they believe they can wait out the administration until the terms of their commitments are either substantially revised or simply dropped. This would be a disappointing end to an otherwise promising trade and investment framework, but there is reason to believe that we are currently traveling down this path of least resistance.

We are still in early stages of implementation, however, and there is ample time to pursue more ambitious opportunities. The administration should consider improving the processes for project sourcing and implementation, and bring a wider range of companies and investors into these discussions. Officials responsible for the implementation of foreign investment commitments should also consider working more closely with other U.S. government investment authorities, which have moved quickly to advance a number of high-impact investments in strategic sectors. Better coordination on strategic supply chains, as well as improved sharing of investment expertise, could prove valuable to all.

Indeed, the administration should be heartily commended for the significant strengthening of domestic investment tools, such as the Office of Strategic Capital in the Department of War, various investment authorities in the Energy Department, expanded resources at the International Development Finance Corp., and other public investment authorities. The administration also has an opportunity to expand the capability and resources of the Export-Import Bank of the United States in this year’s congressional reauthorization.

At the same time, the administration has neglected low-hanging fruit on initiatives like supply-chain mapping environmental permitting reform that could remove substantial obstacles to critical industrial projects. Although privileging firm baseload power over intermittent clean energy sources is entirely sensible, interference with already-permitted wind projects is counterproductive to both energy generation and policy negotiations in Congress. It would be legislative malpractice for a White House-Congress Republican “trifecta” to fail to deliver on permitting reform when there is considerable Democratic appetite for such efforts.

Finally, as I wrote in my initial reflection on Liberation Day, “too often, the Trump administration seems to be drifting toward Bush-era attempts to bend reality simply by force of will and aggressive unilateralism. Structural changes to the ‘international order’ and global economy are needed. But the reason why such reordering is necessary is that the United States occupies a much weaker position than it has in the recent past, and must therefore engage more strategically.”

With its attack on Iran, the Trump administration has since essentially adopted George W. Bush–era foreign policy, too. The resulting economic effects have put significant pressure on key allies and potential investment partners like Japan, South Korea, and the Gulf states, making ambitious investment partnerships more difficult. Meanwhile, the domestic political fallout adds to the uncertainty surrounding whether any of these policies will survive the next presidential election.

The administration has laid strong foundations for revitalizing the U.S. industrial base. Going forward, it will be critical to avoid the unforced errors that have thus far inhibited the realization of their true promise. Achieving the full potential of these innovative trade agreements will require more constructive approaches and long-term thinking, both at home and abroad.