Negotiating an Inelastic US: Why G-minus is the Realist Outcome

Negotiating an Inelastic US: Why G-minus is the Realist Outcome

by
Danny Quah
Oct 2025

Synopsis: If the US only ever responds inelastically, its diminished international relevance is the expected Realist outcome. If US trade policy continues to make it costlier for countries to export to the US, then those countries will eventually stop exporting to the US. This is the natural progression from G7 to G2 to G-zero … to G-minus.

However it was that nations chose to respond to Trump’s Liberation Day tariffs (LDT), in the process there must have been expectation that those nations’ sacrifices would achieve some return. The Great Power, in this prediction, ought to be flexible: Greater effort in acquiescence and alignment should draw correspondingly greater reciprocal action.

Economists describe this as elasticity, and the concept can be expressed numerically.

We have learnt in the last several months that America’s elasticity is either zero or negative. Nations that have worked hard have not only gotten nothing in return; in several high-profile cases, their circumstances have instead worsened.

Vietnam was first to negotiate with the Trump administration. Faced with a LDT rate of 46%, Vietnam managed to negotiate rates down to 10-15%, only to have Trump unexpectedly announce a rate of 20% in general and of 40% on those goods the US identifies as trans-shipments. In addition, Vietnam appears to have ignored its own domestic laws in fast-tracking a USD1.5bn Trump family golf complex.

Indonesia began with an LDT of 32% that got lowered to 19% in mid-July. In return, however, Indonesia has committed to USD34bn purchases of US energy, US agricultural products, and US aircraft, and to invest in Louisiana blue ammonia industry. India’s LDT started at 26%, was lowered to 25% in mid-August, but then doubled to 50%, with its jewelry, gems, and textiles industries at extreme risk. South Korea’s LDT of 25% was negotiated down to 15% by early August but then had to commit to invest USD350bn in US “strategic projects” and USD100bn in US energy products. (We can also note in passing that South Korea had a Free Trade Agreement with the US.) Similarly, Japan’s LDT of 24% came down, with negotiations, to 15%, but Japan had to commit to invest USD550bn in US projects in EV supply chains, shipbuilding, and semiconductors. Malaysia obtained an early-August tariff rate of 19%, down from LDT 24%, but then had to commit to a USD240bn package of spending and investment on US energy, aircraft, and semiconductor and data equipment.

To get a sense of proportion, Japan’s annual GDP is USD4.03tn, so its investment commitment in this agreement is 14 percent. For South Korea, it is 20 percent; for Malaysia, 57 percent!

In economic terms, US elasticity is either zero or negative in response to concessions (and acquiescence and alignment). The right response is to stop making concessions and to stop acquiescing and aligning with the US. Some observers might say, yes, but even if acquiescence and alignment get us little in trade terms, it gets us political and security benefits from the US. The question then is, if the elasticity between trade terms and acquiescence is so unfavorable, why does anyone think the cross elasticities will be any better? Put another way, if you can’t trust the US to respond positively to your ventures on trade, why do you think it would do so in a situation of national security?

Regardless of one’s views on this, however, the elasticity of other nations’ is likely more reasonable. As long as those elasticities are the right sign, then the more expensive it becomes to engage with the US, the less engagement there will be. In economics, this is called a downward-sloping demand curve. Extrapolating a trend from G20 to G7 to G2 to G-zero, we might therefore need to prepare for a G-minus world, where global engagement will no longer have the US in it. No hard feelings, this is just Realism and economics. Obviously, the world is better with America in it than not, but none of the rest of us can make that happen simply by wishing it.

In the limit, the world will have zero interaction with the US, which will then in turn be surrounded only by fish, to its East and West, and friends (to the North and South, or what it can find of them).

My panel discussion with Melisa Idris and Elina Noor took place in June, two months after Liberation Day, and two months before the resolution I describe. Obviously, we couldn’t have known about any of these details, but the trend to G-minus was apparent in what we did say.

Panel (with Melisa Idris moderator and Elina Noor). 2025. “Consider This: The US, China, and a Changing Asia”, Astro Awani video (19 Jun).

Quah, Danny. 2025. “Concede or Resist”, Straits Times (02 Sep), pp. 22-23