Over the past year, a number of the United States’ economic partners – among them, the EU, Japan, South Korea, Taiwan and the Persian Gulf oil and gas producers – have pledged to invest close to $6 trillion in the United States. These commitments are part of broader economic and security arrangements negotiated with the Trump administration.

The negotiations have focused on expanding market access for U.S. exporters and increasing imports of specific U.S. goods, while the accompanying investment pledges are meant to support Washington’s plans to expand industrial capacity and reduce supply-chain vulnerabilities. Accordingly, the pledges centered around strategically important sectors – notably, energy, semiconductors and critical minerals. In return, Washington has offered lower tariff rates and ongoing cooperation on economic and security issues.

However, the headline figures totaling in the trillions should be treated with caution. Our research at the Peterson Institute for International Economics looks at how these pledges are structured, the channels through which they might be implemented and, ultimately, whether partner countries have the capacity to fulfill them. For several countries, the announced sums are exceptionally ambitious, raising doubts about when (or whether) they can be realized. Implementation will depend on a mix of sovereign wealth fund investments, government incentives for private-sector participation and, in some cases, public borrowing or the reallocation of reserves. Some governments, moreover, may have difficulty corralling the various actors who actually control these resources.

Two subsequent developments raise further questions about the pledges. First, the war pitting Israel and the U.S. against Iran, and Iran’s retaliatory attacks have introduced added geopolitical and economic uncertainty, especially for the Gulf Cooperation Council states, which account for nearly two-thirds of the investment pledges collected. Blockage of the Strait of Hormuz has disrupted global energy markets and heightened doubts about the ability of those countries to follow through with their pledges. Second, the U.S. Supreme Court ruled that tariffs imposed under the International Emergency Economic Powers Act lack a sound legal basis. Those tariffs had served as potent leverage in several negotiations tied to the investment pledges.

Yet, while the legal setback could reshape the deals or slow implementation, they will not undo them – and for understandable reasons. For one thing, the United States retains other legal tools to exert trade pressure. For another, many partners rely on the U.S. security umbrella. Their willingness to make the investment pledges was thus motivated by more than tariff threats alone.

Furthermore, the dirigiste shift in U.S. policy may outlast the Trump administration. Cross-border investment is no longer being treated as a purely commercial matter best left to market forces, but increasingly as a strategic instrument shaped by geopolitical rivalry and national-security concerns. And given the enduring nature of the pressures on U.S. partners, few are likely to walk away from the investment commitments.

Paying for Protection

“America First” investment arrangements are taking shape at a moment when the global economy is becoming more fragmented. Geopolitical rivalry between the U.S. and China, together with persistent global macroeconomic imbalances, is contributing to a gradual reorganization of trade and investment relationships. For decades, the United States absorbed a large share of surplus global savings, reflecting both the dollar’s central role in the international financial system and America’s provision of what might be termed global public goods, including security guarantees and deep, open financial markets. While that system supported international stability, detractors have argued that it also created domestic instabilities including chronic external payments deficits, a hollowing out of the U.S. industrial base and global vulnerability to the priorities of U.S. monetary policy. Pandemic-era supply chain disruptions only reinforced those concerns.

These abrupt changes have, to say the least, complicated the landscape for U.S. partners. Many face the same structural pressures shaping U.S. policy, including concerns about supply-chain resilience, dependence on China in critical sectors, and broader security risks. But they must also navigate an international environment in which the United States is more inclined to demand economic concessions in return for market access and security support. Across Europe and Asia, governments are scrambling to adjust by strengthening domestic industrial capacity, increasing defense spending and tightening investment screening in sensitive sectors. The result is a world in which trade and capital flows are increasingly shaped by politics and security rather than market forces.

A Closer Look at the America First Pledges

The scale of the pledges raises an obvious question: how realistic are they? In some cases, investment horizons are very long or simply unspecified. Moreover, governments face domestic pressures and have limited capacity to directly mobilize foreign investment by the private sector – or for that matter by most public enterprises. Successful implementation will depend on investors who will weigh U.S. macroeconomic conditions and its investment climate along with other factors.

As shown below, many of the pledges are enormous relative to the size of the economies involved, particularly for the GCC countries and Taiwan. Note, though, that some of these countries have large external asset holdings that make the huge pledges more plausible. For example, Saudi Arabia’s Public Investment Fund has around $1 trillion under management. Given this consideration, we construct an illustrative “ability to pay” metric based on three potential sources of external financing: the redirection of 25 percent of outward foreign direct investment to the United States, reallocation of 25 percent of external asset holdings to U.S. foreign direct investment and a shift of 25 percent of imports toward U.S. goods and services (see Figure on page 49). For comparability, we annualized the pledges based on their time horizons, if known. When unknown, we use a 10-year period.

This confirms our initial observation that most GCC countries will have difficulty financing their pledges.

The UAE, Saudi Arabia and Qatar fall below the 100 percent threshold, even if they mobilize a significant share of their external assets. Similarly, South Korea and Taiwan may have some difficulty unless imports from the U.S. are counted against their commitments. While the thresholds we choose are somewhat arbitrary, a 25 percent reallocation of imports to the benefit of the U.S. would by no means be easy. Drawing down reserves may conflict with exchange-rate management in the GCC; in South Korea, it may conflict with financial-stability objectives.

As a final check, we assess fiscal capacity. Countries with low public debt – such as the UAE, Qatar, Switzerland and Taiwan – have greater room to support overseas investment through public borrowing, if necessary. Others, including Japan and Bahrain, face tighter fiscal constraints. Even where fiscal space exists, public borrowing is not a straightforward solution. Issuing debt to support purchases of U.S. assets could crowd out domestic investment.

Our bottom line: some of the pledges are, to say the least, ambitious. The headline commitments are thus unlikely to materialize quickly or in full. Still, even partial implementation could have significant macroeconomic implications for the United States.

Many projects will likely move forward, particularly where commercial incentives align with U.S. industrial-policy priorities, and the sectoral impacts could be large.

The legal frameworks behind the pledges vary. Some were announced as part of broader bilateral economic discussions with the United States and framed in largely diplomatic terms. Others followed trade negotiations and are part of explicit quid pro quo for tariff relief. Several arrangements also remain politically uncertain. The European Parliament did agree to the U.S.-EU trade deal, but only after tensions over Greenland had died down. In South Korea, implementation of the country’s investment pledge remained under debate in the National Assembly despite threats by the Trump administration to reinstate higher tariffs.

Only Japan and South Korea have provided details on the financial terms of their deals with the United States, and those terms appear strikingly lopsided. In both cases, Washington retains effective control over investment project selection, with the White House retaining final authority over whether projects proceed. Japan and South Korea are required to provide financing quickly for approved projects or face higher tariffs or other penalties. Profits are split 50/50 with the United States until principal and interest are repaid. Thereafter, 90 percent of the profits go to the United States. While South Korea’s arrangement pools cash flows from projects, allowing it to offset losses, Japan appears exposed if individual projects fail. Given these terms, we would hardly be surprised if either government seeks to renegotiate if they regain leverage.

As a final point, note that sovereign wealth funds and some public pension funds receive favorable treatment under the U.S. tax code – and that some investments tied to the America First pledges may benefit from these arrangements. However, the future tax status of these projects is not certain. The IRS has discussed narrowing eligibility for such tax exemptions. In addition, initial versions of the One Big Beautiful Bill proposed a “revenge tax” on investors from countries with digital services taxes or undertaxed-profit rules, which were eventually discarded (but perhaps not forgotten).

White House fact sheets for the pledges often highlight commitments by individual firms. These are concentrated in sectors the United States considers strategically important, including semiconductors, critical minerals, pharmaceuticals and advanced manufacturing (see below). The America First agenda supports earlier U.S. initiatives in industrial policy, notably priorities embedded in the CHIPS and Science Act and the Inflation Reduction Act. But there are also some new priorities. Shipbuilding, which now almost entirely consists of military vessels, is currently on the list. Artificial intelligence and the growing demand for data centers have also increased electricity demand, making energy production and infrastructure another one. While the Biden administration pushed for green energy, the Trump administration has made an abrupt U-turn toward fossil fuels.

Not all the projects listed by the White House constitute foreign direct investment in the usual sense. The announcements include contracts with U.S. firms abroad, defense procurement and preference for U.S. goods in imports. Some projects have also been relabeled. A $100 billion semiconductor investment by Taiwan Semiconductor Manufacturing Company, for example, was presented as part of Taiwan’s pledge even though it had already been announced earlier. Going forward, the administration will need to clarify whether the pledges refer only to greenfield investment or whether other forms of FDI, including mergers and acquisitions by foreign companies or upstream supply-chain investments, also count.

That distinction matters because, historically, most FDI into the United States has taken the form of M&A rather than greenfield investment. Indeed, over the past decade, greenfield FDI averaged around $40 billion a year, while M&A averaged about $260 billion. Many of the America First pledges, however, emphasize expanding domestic manufacturing capacity and infrastructure. So even if only a modest share of the announced commitments materializes, greenfield FDI would rise well above historical norms.

Verification is another open question. Announced greenfield investments have tended to exceed realized expenditures by a wide margin. Announced projects have averaged around $120 billion a year, while (as noted above) official data record only about $40 billion in realized investment over the same period. Some projects may never materialize, while others may do so only after long delays. Moreover, companies plainly have incentives to overstate expected spending and to include outlays that fall outside the standard definition of FDI. And because the Commerce Department’s Bureau of Economic Analysis measures FDI using foreign ownership shares, partial U.S. ownership of foreign multinationals could further complicate the accounting.

Recent Developments

Start with the issue of whether the war with Iran will lead countries to reconsider their pledges. The conflict has disrupted shipping for oil and liquefied gas, creating what the International Energy Agency calls “the largest supply disruption in the history of the global oil market.”

The US-Israel-Iran war is also changing the geopolitical and economic landscape for the GCC countries, affecting their ability and perhaps willingness to follow through with their pledges. The conflict has interrupted oil and gas production and exports, along with hurting tourism and other non-energy production. The GCC countries are also dissatisfied with U.S. military support against Iranian attacks, presaging some possible geopolitical realignments. The war will also likely lead to increased defense spending in the GCC and will weaken the region’s economic diversification model, which is anchored on being a rapidly growing hub for global trade and services.

The GCC’s sovereign wealth funds are therefore reconsidering their investment strategies. The departure of the UAE from OPEC could also lead to increased oil production and lower oil prices. All of these developments suggest that the GCC countries will recalibrate their America First pledges – without necessarily reneging on their interest in America First commitments as a whole. The recent rise in energy prices could also weaken the economies of Japan, South Korea and Taiwan, reducing their ability to fulfill their pledges since Asian markets absorb much of the oil that normally moves through the Strait of Hormuz.

The Paris-based International Energy Agency’s member countries have responded with the IEA’s largest-ever emergency oil stock release, but that can only serve to cushion the shock, not eliminate it. In any event, many of the America First commitments – and, in particular, those from the GCC – appeared ambitious relative to the economic resources available before the war and the Supreme Court decision. The new geopolitical environment increases the pressure on governments to reconsider the timing or scale of their plans.

There’s a counterweight to this conclusion, though, since the strategic logic behind satisfying the Trump administration remains intact. Heightened geopolitical uncertainty may even reinforce the incentives for many countries to maintain close economic and security ties with the United States. The most likely outcome, then, is not a collapse of the America First investment arrangements but slower implementation and, in some cases, renegotiation.

The Supreme Court ruling presents a different kind of challenge. The February court decision undid a key legal basis the Trump administration had used to threaten tariffs during negotiations over the America First investments. The administration has since invoked other statutes – notably Section 122 of the Trade Act of 1974 – to impose temporary tariffs (10 percent across the board) anchored on concerns about the U.S. international balance of payments. But the U.S. government suffered another blow on May 7, when these were declared unlawful by a federal trade court.

These rulings thus struck down some of the legal authority the administration had asserted to press its trading partners, but they did not invalidate the broader bargaining power that allowed the White House to force deals on what amount to unilateral terms. The Section 122 tariffs were set to expire in July, and the administration is now turning to Section 301, which allows it to proceed on a country-by-country basis. The USTR is actively conducting investigations targeting China, the EU, Mexico, India and others. The administration may also test Section 338 of the 1930 Smoot-Hawley Act, which allows the United States to retaliate against countries deemed to follow discriminatory trade practices.

The rulings are unlikely to fundamentally undermine the America First investment arrangements. For several participating countries including Japan, South Korea, Taiwan and the GCC states, the pledges are tied to broader security relationships with the United States. The decision thus may slow implementation or lead to renegotiation of some commitments, but it is unlikely to trigger wholesale abandonment. Note, moreover, that the court’s decision did not automatically undo the America First agreements.

Could there be macroeconomic gains for the United States? Foreign investment has long helped drive productivity growth in the U.S. economy. If the America First pledges translate into real greenfield investment, they could expand high-value industries and strengthen the country’s position in several strategic sectors. But the gains will depend less on the headline size of the pledges than on the sort of capital – and how much of it – actually arrives, and whether the economy can absorb it efficiently.

On the positive side, additional foreign capital could increase investment in targeted sectors, raising productive capacity, output and employment. If directed toward sectors involved in foreign trade, it could also expand exports. New domestic capacity may strengthen supply-chain resilience as well, although that benefit is primarily strategic – a buffer against geopolitical shocks – rather than a source of long-term growth. On the other hand, large investments concentrated in a few sectors could strain labor markets, push up wages and increase project costs. Large capital inflows may also appreciate the dollar, making U.S. exports less competitive and imports cheaper.

The effects on the U.S. balance of payments are more ambiguous. Foreign investment can improve the trade balance by expanding production capacity and exports, but it also generates income outflows as foreign investors receive returns on their investments. In other words, inward investment can strengthen the productive base while still weighing on net income. Whether the overall effect is positive will depend in large part on whether the investments generate enough additional export capacity and productivity growth to offset those future outflows.

A related question concerns the United States’ long-standing “exorbitant privilege.” Foreign investors have historically held relatively safe U.S. assets, such as Treasury securities, while U.S. investors abroad have tended to hold higher-return equity investments. As a result, the United States has often earned positive net income from abroad despite running persistent current-account deficits.

If the America First arrangements significantly increase foreign ownership of productive assets in the United States, they could gradually erode this advantage by increasing the share of profits flowing to foreign investors. Notably, the profit-sharing arrangements with Japan and South Korea minimize financial outflows. But together, those two countries account for less than $1 trillion of the roughly $6 trillion pledged.

Biden Redux?

Both the Trump and Biden administrations have deployed industrial policies to support U.S. manufacturing and reduce vulnerabilities associated with dependence on China. The Biden administration relied primarily on subsidies and incentives to attract investment in targeted sectors, while the Trump administration has coerced foreign governments to pay for U.S. industrial expansion.

But it’s important to recognize that the America First arrangements are not a complete break with earlier practice, in the sense that the U.S. has long used its political, military and economic influence to extract concessions from other countries. What is distinctive, though, is the way the Trump administration has pursued these aims through public pressure on allies. In particular, the threat of tariffs and other trade restrictions has been used more forcefully to induce partners to make investment commitments.

This reflects both geopolitical and domestic political imperatives. On one level, the administration is using economic instruments to advance U.S. strategic positioning. In recent years, U.S. policy has increasingly relied on tariffs, export controls, investment screening and financial sanctions to pursue nationalsecurity goals. But domestic politics matters as well. The Trump administration has argued that U.S. decline reflects unfair treatment by allies and its demand for concessions fits squarely within that political narrative.

Another distinctive feature of America First arrangements is their bilateral and often informal character. The administration has pursued country-by-country negotiations tied to ongoing access to the U.S. market, arrangements that often avoid binding treaty commitments and instead take the form of political understandings or executive agreements between governments. This approach reflects the administration’s preference for flexible deals shaped by personal relationships between leaders rather than formal multilateral frameworks. It may also reflect deeper institutional dynamics in the United States, including the growing dominance of executive authority in economic policy, the difficulty of securing congressional approval for formal agreements, and a belief that flexibility increases Washington’s leverage.

While it has wielded its tariff stick and pushed through deals, the Trump administration has also looked to facilitate foreign investment by lowering regulatory barriers, at least in part. The Committee on Foreign Investment in the United States (aka CFIUS), an interagency group led by the Treasury, normally screens foreign investment, but its focus has gradually expanded beyond traditional defense concerns.

The White House memorandum on the America First Investment Policy outlines a more nuanced approach that would fasttrack CFIUS review for trusted investors and expedite large investments. Meanwhile, the memo identifies China as a foreign adversary and proposes tighter restrictions on Chinalinked investment along with tighter scrutiny of outbound U.S. investment with the aim of limiting technology transfer to China and other rivals.

Where We're Heading

The developments that motivated our analysis – the Supreme Court ruling on tariffs imposed under IEEPA and the escalation of conflict with Iran – have raised legitimate questions about the durability of the America First investment arrangements. The court’s decision weakened one of the legal tools the Trump administration had used to pressure partners into making investment pledges, while disruptions to shipping through the Strait of Hormuz and rising defense expenditures could weaken the financial capacity of some GCC states (and to a lesser extent Japan, South Korea and Taiwan) to implement their ambitious commitments.

Yet these developments are unlikely to spell the end of the America First initiative since for many participating countries the pledges are intertwined with broader strategic relationships with the United States. Implementation may slow and some commitments may be renegotiated, but the incentives to maintain close economic and security ties with Washington remain strong.

Even if some investments do not materialize, the arrangements still mark a shift in the global investment regime. For decades, the international system rested on the assumption that cross-border capital flows should be driven primarily by commercial considerations mediated by markets. That assumption is weakening. U.S. administrations increasingly view foreign investment through the lens of national security, technological competition and geopolitical alignment. The America First arrangements accentuate this shift.

For investors and policymakers, that means a global investment climate that is becoming more political. Strategic sectors – from energy and critical minerals to advanced technologies – are likely to attract particular attention. Some national security concerns are valid. But the return of industrial policy also raises familiar concerns around inefficiency, favoritism and corruption. And if projects pursued under the America First banner are poorly selected or weakly overseen, the U.S. could erode its reputation as a leading destination for investment. At a time when economic governance in the United States is already under strain, the downside risks are significant.