The Bargaining Paradox III

How Transactional Diplomacy May Reshape the Strategic Environment of the United States

— It Is Not the Players That Change, but the Board

Paper 3 of the research program. Following Paper 1 (“The Collapse of Shared Context and the Explicit Society”: the axis of information) and Paper 2 (“The Bargaining Paradox”: the axis of time), this paper deals with the axis of environment.

Abstract

In international politics, negotiation is generally understood as an act performed within a given strategic environment. But repeated bargaining behavior changes actors' expectations about the future and their investment decisions, and through these it can influence the subsequent strategic environment itself.

This paper explains this through the mechanism Expectation → Investment → Structure.

When uncertainty about a particular state's future behavior increases, the counterpart may not stop at simply making stronger demands in the next negotiation. It can strengthen its own future BATNA by investing in long-term assets: military capability, nuclear deterrence, supply chains, payment infrastructure, the structure of foreign-exchange reserves, and diplomatic options. This paper names a BATNA built in this way a Structural BATNA.

Once such investments harden into institutions and physical assets, there is a possibility that even if policy later changes again, the earlier strategic environment will not be fully restored. This paper calls this strategic hysteresis.

But we do not assume that such change means American decline. Increased autonomy of allies can reduce dependence on the United States while at the same time increasing the capability of the alliance as a whole. Alternative financial and payment infrastructure, too, may be insurance for risk diversification rather than an exit from the dollar system. Diplomatic diversification, too, may be an expansion of options rather than a break with the United States.

Therefore the purpose of this paper is not to predict the future of the United States after Trump. What this paper offers is a set of criteria for judgment.

If repeated transactional bargaining behavior produces lasting change in the strategic environment, what should we be able to observe?

And conversely,

What observed outcome should lead us to reject this hypothesis?

This paper answers these two questions. The public record of 2025–2026 is used only as candidate observations, not as verdicts, and all contemporaneous facts were checked against original sources as of September 6, 2026 (Appendix).

Keywords: transactional diplomacy, strategic environment, Structural BATNA, strategic hysteresis, pluralization of nuclear deterrence, de-dollarization, middle-power hedging, falsification criteria

The two preceding papers dealt with two aspects of negotiation.

The first paper dealt with the axis of information. When information and context are externalized, transaction costs fall. But at the same time, part of the bargaining power that arose from information asymmetry changes as well.

The second paper dealt with the axis of time. Repeatedly optimizing short-term transactional results can change long-term bargaining capital such as trust, reputation, and future options.

The third paper goes one step further.

Negotiation does not take place only on a given board.

If repeated bargaining behavior changes the counterpart's expectations, those expectations induce long-term investment, and that investment creates new institutions and capabilities, then bargaining behavior can ultimately influence the very board on which the next negotiation takes place.

Repeated bargaining behavior may change not only the bargaining position of an actor, but also the environment in which future bargaining occurs.

If the strategic environment is treated simply as a given condition, this phenomenon is hard to explain.

This paper defines the strategic environment as the combination of four elements.

Et=(Ct,At,It,Xt)

E_t=(C_t,A_t,I_t,X_t)

where:

• CtC_t: distribution of capabilities

• AtA_t: alignment patterns

• ItI_t: institutional infrastructure

• XtX_t: shared expectations

The strategic environment does not mean only who is how strong. It includes who cooperates with whom, which financial, payment, and security infrastructure is used, and how much the future behavior of counterparts is trusted.

Therefore the strategic environment can, in part, change endogenously.

Et+1=F(Et,Bt,It+1,Zt)

E_{t+1}=F(E_t,B_t,I_{t+1},Z_t)

Here BtB_t is current policy and bargaining behavior, It+1I_{t+1} is the responsive investment made in reaction to it, and ZtZ_t is exogenous shocks such as war, technological change, and economic growth.

This distinction matters. Because observed change in the strategic environment cannot all be interpreted as the result of a particular leader's policy (Chapter 8).

The central mechanism of this paper has three stages.

3.1 Expectation

Repeated policy and bargaining behavior provide the counterpart with signals about the future. If the counterpart judges that a particular state's future behavior is hard to predict, it may reassess its dependence on the relationship.

What matters is not an emotional change in trust. It is a change in the expectations used in future decision-making.

3.2 Investment

When expectations change, the counterpart may invest to reduce future risk. For example:

• Increases in defense spending

• Building its own weapons systems

• Debate on nuclear latency or nuclear deterrence

• Supply-chain diversification

• Building alternative payment networks

• Diversification of foreign-exchange reserves

• New diplomatic partnerships

• New regional security groupings

The important concept at this stage is BATNA. In traditional negotiation theory, BATNA tends to be treated as something that already exists outside the negotiating table. But in long-run international politics, BATNA itself can be built.

BATNA is not merely discovered outside the bargaining table. It can be constructed outside the bargaining table.

A state merely saying “we have other options” and a state actually possessing other options are different things.

Build alternative supply chains, build alternative payment networks, expand military power, widen diplomatic partnerships, secure strategic stockpiles — and actions that were at first mere insurance become, over time, assets that constitute real bargaining power.

We call this Structural BATNA.

BATNAt+1=BATNAt+Investmentt

BATNA_{t+1}=BATNA_t+Investment_t

The moment a simple negotiating strategy turns into long-term capability building, the counterpart's bargaining power may not easily return to its previous state.

Not every investment leads to structural change. At least three conditions are required.

• Sunk Cost — the investment must be hard to reverse. Weapons systems, production facilities, infrastructure, institutions, and long-term contracts are representative examples.

• Institutionalization — it must be institutionalized beyond the temporary policy of an individual government.

• Network Effect — a structure can form in which the more other states or organizations participate, the easier it is to maintain and the higher the cost of exit.

When these conditions are met, the initial responsive action becomes not a mere policy choice but a new strategic asset.

The key concept here is hysteresis.

Policy can change quickly. But investment and institutions move slowly. The following asymmetry can therefore arise.

Policy Change→Expectation Change

Policy\ Change \rightarrow Expectation\ Change

can happen relatively quickly, but

Expectation Change→Investment

Expectation\ Change \rightarrow Investment

and

Investment→Structure

Investment \rightarrow Structure

take time. Conversely, once a structure has formed,

Policy Reversal ⇏ Structural Reversal

Policy\ Reversal \not\Rightarrow Structural\ Reversal

may hold.

This is what is meant here by hysteresis. But hysteresis does not mean irreversibility. More precisely, it is

the phenomenon in which the cost and time of reversing a change become greater than the cost and time of producing it.

Therefore, even if U.S. policy later changes, one should not assume that this alone automatically restores the earlier strategic environment.

This mechanism can be tested in at least four domains. For each domain, candidate observations from 2025–2026 are arranged. Candidate observations are not verdicts — how far each has progressed along the chain of Chapter 10 (Expectation → Investment → Institutionalization → Persistence → Structural Effect) differs in each case.

7.1 Deterrence

If allies feel uncertainty about U.S. extended deterrence, they may gain an incentive to strengthen their own defense capabilities. But this can be interpreted in two directions.

• Reduced dependence on the United States.

• Increased deterrence for the alliance as a whole.

Therefore

Ally Autonomy↑ ≠ U.S. Power↓

Ally\ Autonomy\uparrow \neq U.S.\ Power\downarrow

holds. There is also the possibility that as allies' capabilities increase, the U.S. burden decreases and the capability of the alliance as a whole increases.

Candidate observations (2025–2026) [Fact]:

• On March 2, 2026, in a speech at the Île Longue nuclear submarine base, French President Macron announced, alongside a buildup of French nuclear forces, the extension of nuclear deterrence to eight European countries (the “advanced nuclear deterrence” program). The decision to use remains with the French president, but the option of deploying nuclear assets in allied countries is included (Notes from Poland, March 2, 2026; EUobserver, March 4, 2026). The first meeting of the nuclear cooperation group was held in Paris on July 11, 2026.

• Poland made public its consultations on the French nuclear umbrella from March 2025 (Prime Minister Tusk), and in February 2026 President Nawrocki expressed support for a national nuclear program. In an IBRiS poll, a majority supported national nuclear possession.

• In Korea, amid public support for nuclear armament as high as 80%, the debate was reignited in July 2026 by a retired lieutenant general's proposal for “dual-key” nuclear sharing, and the policy elite prefers acquiring threshold capability (The Diplomat, August 19, 2026).

• Japan submitted a record request of about 8.9 trillion yen (56 billion dollars) for its fiscal 2027 defense budget — concentrated on long-range strike, hypersonic, and unmanned forces (Anadolu, August 31, 2026).

[Derived] We do not assert what these observations mean. It is a fact that multiple supply options have appeared in a market for extended deterrence that had a single supplier for 80 years, but whether that is a loss for the United States or a buildup for the alliance as a whole is a question for the chain of Chapter 10 to answer.

7.2 Institutional Infrastructure

The international order is not composed of military power alone. Payment networks, trade networks, supply chains, standards, data infrastructure, financial markets, and security groupings are all strategic infrastructure.

If new infrastructure is created in this domain, what matters is not whether it replaces the United States, but

how usable, in practice, the options other than the United States actually are.

The mere existence of alternative infrastructure is not enough. Actual users, transaction volume, liquidity, network effects, and switching costs are required.

Candidate observations (2025–2026) [Fact]:

• New U.S.-led infrastructure: the semiconductor and AI supply-chain alliance Pax Silica (December 2025, 14 partners), and the critical-minerals price-floor framework FORGE (co-chaired by Japan, 54 partners) (Chatham House, May 12, 2026).

• Infrastructure bypassing the United States: ahead of the 2026 BRICS summit (chaired by India, in New Delhi, scheduled for the second half of the year), the Reserve Bank of India proposed putting the interoperability of member states' CBDCs on the agenda (January 2026). Cross-border transaction records for China's e-CNY and the multilateral CBDC pilot network mBridge are accumulating (infrastructure figures via secondary reporting — Appendix, item 4).

• Middle powers' own plumbing: India and Indonesia (July 2026) bundled defense exports (630 million dollars) with direct rupee–rupiah settlement (LCT) and QR payment linkage.

[Derived] The criterion for reading this is not existence but usage. Laying multiple pipes and having things flow through them are different, and this distinction is precisely the measurement problem of Section 10.5.

7.3 Reserve Structure

The same logic applies in finance. A central bank reducing the share of dollar assets and raising the share of gold or other currencies does not necessarily mean the collapse of the dollar system. The action may be mere insurance-style diversification.

That is,

Diversification ≠ Abandonment

Diversification \neq Abandonment

holds. So what must be observed is not a simple change in shares, but structural change in actual settlement and financial behavior.

Candidate observations (2025–2026) [Fact]:

• The dollar's share of foreign-exchange reserves fell from 71% in 1999 to the 56% range in mid-2025 by IMF COFER data, a roughly 30-year low (via secondary reporting).

• Central-bank gold holdings overtook holdings of U.S. Treasuries for the first time since 1996 (via secondary reporting). Net purchases of 1,045 tonnes in 2024.

• The World Gold Council's central-bank survey (June 2026): 89% expect global gold holdings to rise, 45% expect their own to rise (a record high), and 74% expect the dollar's share to fall within five years — with “hedging geopolitical risk” explicitly cited as the reason.

• Counter-observation: the dollar still accounts for 84% of trade finance and 90% of foreign-exchange transactions. The yuan is about 2% of SWIFT payments. The de-dollarization drive “has hit a wall” — resilience, yes, but not yet influence (Foreign Policy, June 24, 2026).

[Derived] Both sets of observations can be true, which is why this domain is the testing ground where the criteria for judgment work best. What separates “accumulating insurance” from “exiting the system” is not shares but behavior.

7.4 Alignment

The same holds in diplomacy. An ally expanding its relations with China or other states does not necessarily mean leaving the United States. Middle powers can expand their options while maintaining relations with several great powers at once.

Therefore

Hedging ≠ Defection

Hedging \neq Defection

Autonomy ≠ Opposition

Autonomy \neq Opposition

Diversification ≠ Replacement

Diversification \neq Replacement

must be distinguished.

Candidate observations (2025–2026) [Fact]: in January and February 2026, Korea (President Lee Jae-myung, a declaration of “full restoration of relations” with China and agreements on the economy and science and technology), Canada (Prime Minister Carney, a strategic partnership worth 3 billion Canadian dollars), the UK (Prime Minister Starmer, 2.2 billion pounds in export contracts), and Germany (Chancellor Merz, 17 bilateral agreements) concluded independent agreements with Beijing one after another (Chatham House, May 12, 2026). At the Beijing summit of May 14, 2026, Trump himself called U.S.–China relations the “G-2” (Legal Times, May 18, 2026).

[Derived] Whether to read this as defection or as portfolio diversification — that is a question for the criteria of Chapter 10 to answer, and this paper reserves its answer.

To avoid overestimating the effect of any particular policy, this paper must explicitly consider alternative explanations.

• Structural multipolarization — China's economic growth and the rise of regional powers have proceeded independently of any particular U.S. administration.

• War and geopolitical shocks — war, sanctions, and the freezing of foreign-exchange reserves can independently drive changes in financial and security policy. In particular, the 2022 freezing of Russian reserves is an explanatory variable that precedes transactionalism in time for the reserve shifts of Section 7.3.

• The pre-existing problem of allies' defense underspending — allies' defense increases may be due not only to U.S. pressure but to changed threat perceptions of Russia, China, and others.

• Technological and economic change — changes in payment technology, energy markets, and supply chains can also independently drive the building of new infrastructure.

Therefore, this paper does not make the claim that

Trump caused the structural change

That is not our claim. The more limited proposition is the following.

Transactional diplomacy may accelerate, amplify, or redirect pre-existing structural changes by altering expectations and therefore investment incentives.

Then what will happen after Trump?

At present, we cannot know. And this is not a weakness of the paper. Rather, it is the starting point of the research.

The United States may later recover the trust of its allies. In that case, a considerable part of the change may be reversed. Allies may keep the military capabilities and institutions they have already invested in. The United States may accept such changes and integrate them into a new form of alliance structure. Or a strategic network separate from the United States may grow.

This paper therefore predicts none of these. Instead, it sets out which observed results would support which direction of interpretation.

The core of this paper is here. To judge the hypothesis correct, a single opinion poll showing “dissatisfaction with the United States has increased” is not enough. The following chain must be observed.

Expectation→Investment→Institutionalization→Persistence→Structural Effect

Expectation \rightarrow Investment \rightarrow Institutionalization \rightarrow Persistence \rightarrow Structural\ Effect

10.1 Expectation

Has uncertainty about future U.S. behavior actually increased? This must be measured not in press commentary but in the behavior of policymakers and markets. Candidate indicators: the frequency of expressions of uncertainty in allies' official documents, risk premiums, structural changes in security-related budgets.

10.2 Investment

Have changed expectations led to actual long-term investment? Has investment in defense, supply-chain, financial, payment, and diplomatic infrastructure increased? Candidate indicators: the domestic-industry share of defense budgets, the number of non-dollar payment channels, the speed of execution of changes in reserve-asset composition.

10.3 Institutionalization

Has that investment hardened into institutions, contracts, production facilities, and networks rather than temporary policy? Candidate indicators: whether it has been codified in treaties, multi-year budget allocations, the establishment of dedicated organizations, the number of multilateral participants.

10.4 Persistence

Does the change persist even when the United States later changes its policy?

This stage is especially important. Only if the structure remains even though policy has changed is there evidence of hysteresis.

10.5 Structural Effect

Finally, has the actual bargaining environment changed? Has the counterpart's BATNA increased? Have the United States' options decreased? Or, on the contrary, have the options of both the United States and its allies increased?

That is, one must look at whether not merely behavior but the very set of negotiable outcomes has changed. Candidate indicators: comparison of terms in comparable negotiations (time series), the frequency of counterparts' refusals and exercise of alternatives, coordination costs within alliances.

Conversely, if the following results are observed, the hypothesis should be weakened or rejected.

• Falsification 1 — Rapid Reversal: when the United States revises its policy, expectations recover quickly and long-term investments are withdrawn. → Hysteresis weakened

• Falsification 2 — Failed Investment: new military, financial, and supply-chain investments do not convert into actual capability. → Investment mechanism weakened

• Falsification 3 — Failed Institutionalization: investment stops at temporary political declarations and does not settle into institutions or infrastructure. → Structural mechanism weakened

• Falsification 4 — No Persistence: when policy changes after Trump, the strategic environment quickly returns to its previous state. → Environmental persistence weakened

• Falsification 5 — No Bargaining Effect: the changes do not increase the counterpart's BATNA or options in actual negotiations. → Structural BATNA hypothesis weakened

The strongest evidence is not a single action by a particular state. It is a chain of changes like the following.

Uncertainty↑

Uncertainty\uparrow

⇓

\Downarrow

Long-term Investment↑

Long\text{-}term\ Investment\uparrow

⇓

\Downarrow

Institutionalization↑

Institutionalization\uparrow

⇓

\Downarrow

Reversal Cost↑

Reversal\ Cost\uparrow

⇓

\Downarrow

Structural BATNA↑

Structural\ BATNA\uparrow

And if these changes persist even after U.S. policy has changed, the interpretation that transactional bargaining behavior had a lasting effect on the strategic environment grows stronger. Conversely, if this chain breaks in the middle, the hypothesis is weakened to that extent.

The three papers now form a single structure.

• Paper I — Information: Where is information located? When information and context are externalized, transaction costs fall, but the bargaining power that arose from information asymmetry changes.

• Paper II — Time: What happens to bargaining capital over time? Repeatedly optimizing short-term transactional results can change long-term trust and future bargaining power.

• Paper III — Environment: What happens when those changes accumulate? When expectations change, investments are made, and structures change, the very environment in which the next negotiation takes place can change.

The overall structure is therefore as follows.

Information→Bargaining→Time→Expectation→Investment→Structure

Information \rightarrow Bargaining \rightarrow Time \rightarrow Expectation \rightarrow Investment \rightarrow Structure

And ultimately,

Structure→Future Bargaining

Structure \rightarrow Future\ Bargaining

— a feedback loop is created.

Negotiation is generally thought of as something that happens between two players. But in long-run negotiation, it is not only the players that change.

The signals a player sends to the counterpart change the counterpart's expectations; expectations change investment; investment changes capabilities and institutions; and those capabilities and institutions can change the options of the next negotiation. Negotiation is therefore not merely a distributive game; at times it becomes a process that generates the environment.

But this paper does not predict in which direction that environment will change. The United States may recover. It may restore its alliances. American influence may expand again. Conversely, some changes may harden and never return to what they were. Which it will be, we cannot yet know.

What we can do is build the criteria for judging the difference.

So the final question of this paper is not “what will the world look like after Trump?” The more precise question is the following.

“What evidence, if observed, should lead us to judge that the strategic environment has actually changed?”

And

“What evidence, if observed, should lead us to reject this hypothesis?”

That is the purpose of this paper.

Policy can change. Trust can be restored. But how easily do the capabilities, institutions, infrastructure, and networks built in the meantime disappear?

The answer cannot be known now. But the criteria for measuring it can be built now.

The future is unknown. The test does not have to be.

Theory (classics, edition information only)

• Axelrod, R. (1984). The Evolution of Cooperation. Basic Books.

• Fisher, R., & Ury, W. (1981). Getting to Yes. Houghton Mifflin.

• Ikenberry, G. J. (2001). After Victory. Princeton University Press.

• Jervis, R. (1978). Cooperation under the security dilemma. World Politics, 30(2).

• Schelling, T. C. (1960). The Strategy of Conflict. Harvard University Press.

• Walt, S. M. (1987). The Origins of Alliances. Cornell University Press.

• Wendt, A. (1999). Social Theory of International Politics. Cambridge University Press.

Contemporary sources (checked against originals as of 2026-09-06)

• Chatham House (May 12, 2026). Trump's treatment of US allies has weakened his negotiating position with Xi.

• Notes from Poland (March 2, 2026); EUobserver (March 4, 2026); RBC Ukraine (July 11, 2026). Macron's Île Longue speech and the extension of the nuclear umbrella, the Polish consultations, the first nuclear cooperation group meeting.

• Wikipedia (via bibliography). Poland and weapons of mass destruction — Tusk (March 2025), Nawrocki's Polsat interview (February 15, 2026), the IBRiS poll.

• The Diplomat (August 19, 2026). South Korea's Nuclear Dilemma.

• Anadolu Agency (August 31, 2026). Japan's fiscal 2027 defense budget request of about 8.9 trillion yen.

• World Gold Council (June 16, 2026). Central Bank Gold Reserves Survey 2026.

• Secondary reporting via IMF COFER — the time series of the dollar's reserve share, gold holdings overtaking U.S. Treasuries.

• Foreign Policy (June 24, 2026). China's De-Dollarization Drive Has Hit a Wall.

• Legal Times (May 18, 2026). Analysis of the 2026 U.S.–China Beijing summit.

• EUobserver (March 4, 2026). The decline in military aid to Ukraine (via Bruegel).

• academicjobs.com (January 17, 2026). Preparations for the BRICS 2026 New Delhi summit.

• debuglies.com (January 25, 2026) and other secondary reporting — the RBI's BRICS CBDC interoperability proposal, mBridge and e-CNY figures.

• The Southeast Asia Desk (July 16, 2026). The India–Indonesia summit package.

• Papers 1–2: “The Collapse of Shared Context and the Explicit Society”; “The Bargaining Paradox: Transactional Diplomacy and the Erosion of Structural Bargaining Power.”

• Extension of the French nuclear umbrella: cross-confirmed across three independent reports — Notes from Poland, EUobserver, RBC Ukraine (the Île Longue speech of March 2, 2026, eight countries, Tusk's confirmation, the Paris meeting of July 11).

• Reserve figures: the WGC survey (2026) was confirmed in the original (grade S). The COFER time series (71% → the 56% range) and “gold > U.S. Treasuries (for the first time since 1996)” were confirmed via secondary reporting, and the text notes that route.

• Japan's defense budget: Anadolu (August 31, 2026), a single report; only the figure is cited.

• BRICS infrastructure figures (e-CNY cumulative 14 trillion dollars, mBridge 55 billion dollars): via NA-grade secondary reporting. Used in the text only as directional evidence, not as grounds for core claims.

• Counter-evidence on de-dollarization: Foreign Policy's (June 24, 2026) “wall” diagnosis and figures (trade finance 84%, foreign-exchange transactions 90%, yuan about 2%) are placed as counter-observations in Section 7.3, as is proper.

• Frame consistency: this completed version preserves as they are the structure and expressions of the frame provided by the commissioning party (the “May” in the title, Structural BATNA, the cost-asymmetry definition of hysteresis, the five-stage verification chain, the five falsification conditions, “The future is unknown. The test does not have to be.”), and transplants only verified candidate observations into each dimension of Chapter 7. All predictive sentences retain conditional form.