Tariff Series: We Can’t All Go For The Blonde
The Nash Equilibrium, The Tall Blonde, And Three Reasons Trump Believes In Tariffs
Thus far American Karma’s tariff series has focused on the legal and constitutional issues raised by Trump’s executive tariff declarations. In this essay, I wish to focus on the governing dynamics of international trade.
The initial response to tariffs is always the same: targeted nations impose reciprocal tariffs on goods imported by the United States. If Trump puts 87% tariff on Chinese goods, China put 87% tariffs on U.S. goods.
We Can’t All Go For The Blonde
Many parties pursuing a single objective is counterproductive. In international trade, this congestion problem disrupts the free trade homeostasis described by the “Nash Equilibrium” a concept illustrated in “A Beautiful Mind” (2001) (below).
When five attractive young women enter the bar, five young men gather to discuss their romantic strategy. Each professes a desire to court the blonde in the group (“every man for himself, gentlemen”). The men quote Adam Smith’s axiom that “individual ambition serves the common good.”
In this metaphor the blonde woman is the balance of trade, a scenario in which the value of good a nation exports is equal to the goods it imports.
Nash explains that if they create congestion by all courting the blonde (enact tariffs to create trade balance), then they will block each other none will get her. He argues “the best result will come when everyone in the group is doing what’s best for himself and the group.”
The Nash Equilibrium can be achieved only within a tariff-free trade regime.
Also, I will be adopting the tartan shirt coat and Canadian pipe seen at :05 as my new causal look. I just need a leather club chair and a collie.
Three Reasons Trump Like Tariffs
No one wins in a trade war. So why did Trump start one?
First, Trump is deeply suspicious of international cooperation of any kind. He has displayed open contempt for NATO, the United Nations, and the 2020 US-Mexico-Canada Trade Agreement, asking “who would ever sign a thing like this? On just about anything, every aspect you can imagine, they [Canada and Mexico] took advantage.”
Of course, Trump himself signed it on January 20, 2020, calling it “the fairest, most balanced, and beneficial trade agreement we have ever signed into law.”
Yesterday, he insulted our allies (?) in the G7 for kicking Russian out of the group merely for invading Ukraine in a brutal war of conquest, and then stomped out early.
Second, by unilaterally declaring tariffs, President Trump believes that he is giving himself leverage to cut better, individual deals with nations. This is straight out of his “Art Of The Deal” strategy: bully your opponent into concessions (it worked like a charm with big law firms), using the threat of closed US markets as leverage.
Finally, as Stefan Gerlach, the Chief Economist at EFG Bank in Zurich explains, Trump and his advisors view tariffs not just as a tool of trade policy, but as a fundamental restructuring of how the US federal government is financed.
Trump’s wants to return to Gilded Age economic policies in which tariff revenue replaces income and corporate taxes, a system Trump believes made America wealthy and powerful in the late 19th and early 20th centuries.
In the next part of the series, I will discuss the historical success of President Trump’s coercion strategy using the example of “King Cotton” during the U.S. Civil War.
Cover photo: still image, “A Beautiful Mind,” 2001. © Universal Pictures.