Game theory and calculated chaos

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A strategic look at U.S. tariff policy under Trump, modeled as a sequential game with credible threats and calculated outcomes.

1. Introduction: Why Game Theory?

Game theory is a fundamental analytical tool for understanding decision-making processes in strategic contexts, where each actor’s outcome depends on the actions of others. Initially developed in the field of mathematical economics by John von Neumann and John Nash, its applicability has expanded to fields as diverse as international politics, evolutionary biology, psychology, and conflict theory.

Essentially, a game is a situation where players have distinct objectives, a defined set of strategies, and make decisions while anticipating others’ responses. This interdependent logic is crucial for analyzing highly complex strategic environments such as trade disputes, diplomatic negotiations, or reconfigurations of global order.

In a world marked by increasing multipolarity, economic interdependence, and power asymmetries, international politics no longer resembles a linear flow of rational decisions but rather a dynamic system of strategic interactions. Tariff wars, technological confrontations, financial sanctions, and military coalitions are movements on a board where what matters is not merely what is done, but what is induced in the opponent.

Understanding these processes as games does not trivialize them; it gives them formal structure. It allows for the anticipation of decisions, the detection of credible threats, the interpretation of strategic signals, and ultimately, the deciphering of latent intentions behind observable behavior. In this context, thinking like a game theorist is not just a methodological option but a necessary tool for understanding conflict in the 21st century.

2. Context: Trump, Tariffs, and Planned Chaos

In 2025, this tariff logic resurged under the symbolic label “Liberation Day,” promoted by sectors of economic Trumpism. New rounds of tariffs, especially on Chinese tech products, were justified as measures of industrial sovereignty and strategic rupture with the multilateral order. This continuity with his first presidency confirms that tariff policy was not an isolated episode but a recurring instrument of structural pressure. From a game theory perspective, it can be interpreted as a reiteration of a costly signaling strategy intended to induce repositioning among systemic rivals.

Behind the apparent chaos of Trump’s tariff policy lay a deliberate and structured strategy. According to Stephen Miran, economic advisor during Trump’s presidency and author of the influential essay A User’s Guide to Restructuring the Global Trading System, the real goal was not merely punitive but to reconfigure the international trade order to favor national reindustrialization and restore the structural hegemony of the United States.

The plan, in strategic terms, consisted of three distinct phases:

1. Tariff Chaos: Imposing generalized tariffs on allies and rivals to destabilize the existing equilibrium and disrupt expectations about the multilateral system.
2. Pressure to Renegotiate: Using the trade conflict as deterrence to induce new bilateral negotiations under more favorable terms for the U.S.
3. New Order: Bretton Woods 2.0: Establishing a renewed international framework centered on the dollar as the monetary anchor, shared defense as a managed public good, and “reciprocal” trade rules as the guiding principle.

From the game theory framework, this sequence can be interpreted as a sequential game with strategic commitment, where the U.S. acts as a leading player executing a disruptive, costly, but credible first move to rationally alter its counterparts’ decisions. Chaos, in this context, is not a tactical error but a structured move to maximize negotiating power by shifting the rules of the game.

3. First Tree: Qualitative Model (Strategic Narrative)

To represent the decision logic behind Trump’s tariff strategy, I use a qualitative decision tree model simulating a sequential game with perfect information. Each node represents a critical choice point, with branches showing possible responses and their strategic consequences. This representation helps visualize the chain of moves shaping the trade conflict as a dynamic, structured, and rational interaction.

Tree Structure and Detail:

Level 0 – Root Node: U.S. Begins the Game

• Everything starts here.
• The U.S. is at a strategic crossroads: maintain the current system or disrupt it.

Level 1 – Initial U.S. Decision

1. Status Quo
   • No change in trade policy.
   • Multilateral order continues, but trade deficits and deindustrialization persist.
   • This branch reflects the post-WWII to Obama era.
2. Impose Tariffs
   • The U.S. takes disruptive action: imposes broad tariffs.
   • A costly signal showing willingness to endure short-term pain.
   • The strategic game begins.

Level 2 – Global Reactions to Tariffs

1. Counterattack
   • Affected countries impose retaliatory tariffs.
   • Resulting in a trade war—mutual losses.
   • A classic "game of chicken."
2. Renegotiation
   • Countries agree to bilateral talks.
   • U.S. gains favorable terms in exchange for tariff reduction.
   • Trump’s strategic aim.
3. Formation of Alternative Blocs
   • China, Europe, and others form trade partnerships excluding the U.S.
   • Relative isolation for the U.S., risking its hegemony.

Level 3 – Post-Renegotiation Decisions

1. Proposal for a New International Agreement
   • U.S. leads a new Bretton Woods 2.0:
   • Dollar-based fixed exchange system
   • Shared defense burdens
   • Reciprocal tariffs
   • System is stabilized in U.S. favor.
2. Strategic Withdrawal
   • U.S. claims symbolic victory after obtaining concessions.
   • Reinforces domestic political standing.
   • A tactical exit with reputational gains.

Level 4 – Final Outcomes (Tree Leaves)

1. Trade War – Mutual loss, global instability.
2. New Global Order – Stability under U.S. leadership.
3. U.S. Isolation – Diminished influence and structural power.
4. Reputational Gain – Domestic political capital strengthened.

Synthesis:

This is an example of what Thomas Schelling called the strategy of conflict: generating tension to induce cooperation. Trump behaves like the player who rips the steering wheel off and throws it out the window, signaling he won’t yield—forcing the other player to swerve first.

This decision tree represents an extensive-form game with perfect information, where the U.S. plays as a Stackelberg leader. Through a costly but credible move, it seeks to change the behavior of the system. The logic aligns with Schelling’s theory: the goal isn’t to avoid tension but to create calculated uncertainty as a way to drive agreement.

4. Second Tree: Formalization with Numerical Payoffs

To validate this model formally with game theory, numerical payoffs are assigned to each player (U.S. and rest of the world). The tree looks like this:

Level 0 – U.S. Begins the Game

Two options:

Level 1 – Initial U.S. Decisions

1. Status Quo
   • U.S.: 3 (retains hegemony but continues industrial decline)
   • World: 8 (benefits from open U.S. markets)
2. Impose Tariffs → World must respond.

Level 2 – World Responds

Player 2: Rest of the World has three possible responses:

1. Counterattack
   • Mutual tariffs → trade war
   • Payoffs: U.S.: 2 | World: 2
2. Renegotiation
   • Bilateral deals under U.S. pressure
   • Payoffs: U.S.: 9 | World: 5
3. Alternative Blocs
   • Excludes U.S.
   • Payoffs: U.S.: 1 | World: 4

How to solve the game using this tree

Solved via Backward Induction:

1. If the international response subgame is reached, the World compares:
   • Counterattack: 2
   • Renegotiate: 5
   • Bloc Formation: 4
   Rational best response: Renegotiate
2. U.S., anticipating this, compares:
   • Status Quo: 3
   • Impose Tariffs (leading to renegotiation): 9
   Best response: Impose Tariffs

Subgame Perfect Nash Equilibrium:

U.S. imposes tariffs → World renegotiates → Outcome: (9, 5)

Theoretical Interpretation:

Trump’s tariff logic fits rational strategic behavior:

• Initial chaos acts as a credible signal.
• The final goal is to induce cooperation on better terms through a credible threat.
• Power is asserted through threat and anticipation; the resulting equilibrium favors the U.S. if others act rationally.

This outcome reflects the core strategy: launch a costly threat, relying on other players to rationally prefer a new deal over chaos.

5. Conclusion: Strategy, Power, and Rationality in Conflict

Trump’s tariff strategy, when analyzed through the lens of game theory, reveals itself to be neither irrational nor improvised. It was a high-stakes game based on credible commitment, negotiating leverage, and strategic reconfiguration.

The first tree illustrated the structure of decisions; the second, with payoffs, validated that imposing tariffs is only rational if it successfully induces renegotiation. Chaos isn’t the objective—it’s the mechanism.

This analysis shows how game theory offers a structured way to understand real-world strategic behavior—far beyond trade. In diplomacy, defense, and technological rivalry, the key isn’t just action, but interpretation and response.

Strategic rationality, though it entails short-term costs and apparent disorder, ultimately serves a logic of intertemporal power maximization, not aggregate welfare. It reflects a realist worldview where national interest legitimizes the use of disruption as a tool for order.

Though this is a single sequential game, it could also be seen as part of a repeated game where the leader’s reputation shapes future outcomes. In this view, costly signaling today affects compliance tomorrow.

In contrast, China’s strategy focuses not on direct confrontation but structural redesign—especially in the technological realm. Unlike the US tariff strategy based on direct pressure, costly signaling, and credible threats, the Chinese model focuses on building sovereign technological platforms, from operating systems to developer interoperability layers. As explored in the article on Software-Defined Vehicles, this strategy doesn't seek direct confrontation but aims to structurally reshape the global technological environment. This strategic divergence between actors reveals that there isn't a single geopolitical game, but multiple simultaneous games with distinct implicit rules.

This last point is essential, as the logic of Trump's tariff strategy cannot be understood within classical economic liberalism parameters. It's a strategic bet based on game theory, where initial disorder is instrumental in inducing future cooperation. In times of multipolarity and asymmetric interdependence, thinking strategically is not just necessary: it's inevitable. In this new order, hegemony is not won through efficiency, but through the ability to shape the rules of the game.

6. Glossary of Technical Terms

Source: Own elaboration

7. References