The Queen’s Gambit: How Trump’s Tariffs Turned Global Trade into a Chessboard of Peril

The US President’s unconventional aggressive approach, framed by the classic Prisoner’s Dilemma, has transformed international trade into a high-stakes game of chess, where miscalculated moves could lead to checkmate for all involved

Donald Trump’s foray into international trade policy was, to put it mildly, unconventional. His weapon of choice? Tariffs. The justification was the protection of American industries and jobs, but the execution resembled less a carefully planned strategy and more a bull in a China shop, leaving the global economy teetering on the edge of a trade war. Critics contend that trade deficits don’t necessarily signal unfair practices. The US trade deficit is a persistent aspect of the economy, driven by consumer demand for foreign goods, investment flows, and the dollar’s reserve currency status. Economists argue that trade deficits may indicate a robust economy, where consumers can afford imports, rather than economic failure or exploitation by trading partners. The US President Donald Trump’s aggressive approach, framed by the classic Prisoner’s Dilemma, has transformed international trade into a high-stakes game of chess, where miscalculated moves could lead to checkmate for all involved.

The Prisoner’s Dilemma in Trade: A Losing Game

The Prisoner’s Dilemma, a cornerstone of game theory, illustrates how rational self-interest can lead to suboptimal outcomes when cooperation is absent. In the context of trade, this plays out when countries, motivated by domestic concerns, impose tariffs on imports. While seemingly beneficial in the short term, such actions often trigger retaliatory measures, resulting in a cycle of escalating tariffs that ultimately harm all parties involved. Economists generally agree that free trade increases economic output and income, while conversely, trade barriers reduce economic output and income.

Trump’s tariff strategy embodied this dilemma perfectly. The US imposed tariffs on steel, aluminium, and various goods from China, aiming to protect domestic industries and strong-arm trade partners into making concessions. However, these actions were met with swift retaliation, as countries like China, Canada, and Mexico responded with their own tariffs, targeting American exports. The result was a trade war that raised prices for consumers, disrupted supply chains, and created economic uncertainty.

Historical Lessons: Echoes of the Past

History offers cautionary tales of the detrimental effects of tariff wars. The Smoot-Hawley Tariff Act of 1930, enacted during the Great Depression, is a stark reminder of how protectionist measures can exacerbate economic downturns. By raising tariffs on thousands of imported goods, the US aimed to protect domestic industries, but the move triggered retaliatory tariffs from other countries, leading to a collapse in global trade and deepening the depression.

More recently, the IMF has cautioned against the use of tariffs, noting that unexpected tariff shocks tend to reduce imports more than exports, leading to slight decreases in the trade deficit at the expense of persistent gross domestic product loss. A January 2024 IMF paper found that reversing the 2018–2019 tariffs would increase US output by 0.4% over three years. These historical examples underscore the importance of international cooperation and the perils of protectionist policies.

Chess Moves for Trade Negotiations: A Strategic Approach

Instead of engaging in a tit-for-tat tariff war, countries can adopt a more strategic approach to trade negotiations, drawing inspiration from the game of chess:

• Position comes first, material next: Focus on establishing a strong position before pursuing material gains. In negotiation, prioritise building rapport and understanding the other party’s needs before discussing terms.
• Pawn Structure: Like building a solid pawn structure in chess, countries should focus on establishing stable and predictable trade relationships. This involves adhering to international trade rules and fostering trust among partners.
• Opening Gambit: A calculated initial move can set the tone for negotiations. Instead of immediately resorting to tariffs, countries can propose exploratory talks or offer conditional concessions to gauge the other party’s willingness to cooperate.
• Defence: Safeguarding key industries and addressing unfair trade practices is essential. However, defensive measures should be targeted and proportionate, avoiding broad tariffs that could trigger retaliation.
• Endgame Strategy: Negotiators should have a clear vision of the desired outcome and a well-defined plan for achieving it. This involves identifying key priorities, understanding the other party’s red lines, and being prepared to make strategic concessions.
• Leveraging Chess Strategies: Mastering strategic thinking is paramount to achieving successful outcomes. Just like in a game of chess, where every move counts and foresight is key, negotiators must be prepared to navigate complex scenarios and anticipate their opponent’s next move.

Finding a Draw: The Path to Cooperation

The trade war sparked by Trump’s tariff strategy has created a complex and precarious situation. However, by recognising the pitfalls of the Prisoner’s Dilemma and adopting a more strategic approach to trade negotiations, countries can move towards a more cooperative and mutually beneficial trading system.

The World Trade Organization (WTO) also offers a platform for resolving trade disputes and promoting fair trade practices. Member countries can utilise the WTO’s dispute settlement mechanism to address grievances and seek redress for unfair trade practices. However, questions remain on whether the WTO dispute settlement system works for or against their interests. International trade is not a zero-sum game. By embracing cooperation, transparency, and a commitment to fair trade practices, countries can unlock the full potential of global trade and create a more prosperous and stable world economy. Critics contend that trade deficits don’t necessarily signal unfair practices. Contrary to Trump’s assertions that tariffs would create jobs, analyses have pointed out that his trade policies resulted in job losses across various sectors. A study commissioned by the US-China Business Council indicated that Trump’s trade policies cost approximately 245,000 jobs in the US This suggests that the anticipated benefits of protecting certain industries were outweighed by broader negative impacts on employment.