Donald Trump has returned to the White House and so has his aggressive approach toward friends and enemies, especially when it comes to trade. Trump’s tariff strategy represents a deliberate application of economic leverage to maximize the advantage of the United States in global trade relationships. President Trump has brought his business negotiation strategy to the world stage. Similar to China, Trump clearly prefers bilateral negotiations, and disdains multilateral organizations, viewing smaller members as free riders taking advantage of the U.S. How can we explain and predict his behaviour, which can seem random to some? Trump’s tariff policies might best be viewed through the lens of game theory, and this framework may provide insights into his objectives, the associated risks, and the broader implications for international stability. This analysis examines the strategic calculus behind Trump’s trade tactics and assesses their far-reaching economic consequences.
Trump’s Tariff Game
Game theory is an approach for analysing strategic interactions among rational decision-makers, where the outcomes for each participant depend on the actions of others, making it a critical tool for understanding competitive and cooperative behaviours in economics, politics, and social sciences. Trump’s approach to trade appears to follow the logic of game theory, where strategic decision-making hinges on predicting and influencing the behaviour of opponents. His willingness to use tariffs aligns with the concept of the “prisoner’s dilemma,” where optimal cooperation is often undermined by incentives to defect. These incentives may include gaining short-term economic advantages, protecting domestic industries, or leveraging trade imbalances to secure more favourable terms. In this framework, Trump assumes that other nations — particularly China, Canada, and Mexico — will yield to economic pressure rather than risk a prolonged trade war (see Figure 1).[1]
In classical game theory, the Nash equilibrium, named after American mathematician John Nash, represents a state where no player can improve their position by unilaterally changing their strategy. Trump’s repeated tariff escalations indicate a belief that the U.S. can force trading partners into an equilibrium where they concede more favourable terms to avoid economic damage. If adversaries retaliate in kind, however, the game shifts toward a destructive, suboptimal standoff in which all parties suffer economic losses. Trade wars may lead to a “lose-lose” equilibrium if neither party is willing to change its strategy without assurance that the other will do the same.[2] For instance, in the case of China, retaliatory tariffs on U.S. agricultural exports could harm American farmers while increasing costs for Chinese consumers. Similarly, Canada and Mexico, as key trading partners under the U.S.-Mexico-Canada Agreement (USMCA), might impose counter-tariffs on U.S. goods, disrupting supply chains and raising prices for businesses and consumers on both sides. On Feb. 2, for example, Canada announced 25% tariffs on $155 billion worth of U.S. imports, directly impacting U.S. agricultural exports.[3]
A corollary of Trump’s strategy also reflects credible commitment theory, in which a player takes costly or extreme actions to convince opponents of their resolve. Trump’s application of high tariffs, which threaten economic instability, signals an unwavering stance, therefore increasing the cost of resistance for trade partners. The threat of continued escalation functions as a deterrent, compelling negotiation rather than prolonged confrontation. For example, in 2018 the Trump administration imposed tariffs on $50 billion’ worth of Chinese goods, signalling a strong stance against China’s trade practices. This action revealed a willingness of the U.S. to bear short-term economic costs to pressure China into negotiations. This credible threat of continued economic disruption forced China to engage in trade talks, ultimately leading to the Phase One Trade Agreement[4] in 2020, where China committed to increasing its purchases of U.S. goods.[5] This is not necessarily how a 2025 trade war between the two countries will play out as evolving factors such as heightened geopolitical tensions, greater economic interdependence, and the potential for more multilateral trade alliances could significantly alter the strategic calculus and diminish the effectiveness of unilateral tariff strategies. Some observers have noted that Trump’s tariff policy has two primary objectives:
- Leverage in trade negotiations: Trump forces adversaries, which appear to be everyone the U.S. trades with, to concede ground in trade talks. This is the case in his recent spats with Canada and Mexico.
- Revenue generation: Trump has also touted tariffs as a source of income for the U.S. Treasury. Most economists widely dispute this claim, emphasizing that tariffs ultimately burden domestic consumers and businesses.
These competing goals have internal contradictions. If tariffs succeed in forcing better trade terms, they may be removed, undermining their viability as a revenue source. Conversely, if tariffs are maintained for revenue purposes, they risk long-term economic harm, slowing trade and reducing global investment confidence. Trump maintains that his focus is on revenue generation in some areas while returning some industries back to the U.S. or protecting them, as with domestic steel and aluminium, which he views as critical.[6]
Responding to Tariff Threats: The Evolution of Cooperation and the Tit-for-Tat Strategy
In 1980, political scientist Robert Axelrod hosted a tournament for theorists to test their strategies in the prisoner’s dilemma game. His seminal work, The Evolution of Cooperation, grew out of what he learned from the tournament. The main takeaway was that cooperation can emerge in repeated interactions when parties adopt a “tit-for-tat” strategy, that is, responding to an opponent’s actions with equivalent countermeasures. Axelrod’s work provides a key framework for understanding how Trump’s tariff strategy works and what responses are available to affected countries.
Trump’s tariffs reflect the principle that initial aggressive trade measures will be met with retaliation, but when adversaries adjust their policies in response the U.S. will signal a willingness to ease tariff pressures. The revised tariff executive orders exemplify this approach. Trump’s administration initially imposing strict tariffs, then selectively relaxed them when partners demonstrated their compliance with U.S. demands. For example, The 202 Phase One Trade Agreement with China emerged only after the US imposed $50 billion in tariffs on Chinese items in 2018. Chinese retaliation tariffs led to a final agreement in which China increased its imports of U.S. energy and agricultural goods.[7]
Canada experienced a similar issue when the first Trump administration imposed Section 232 aluminium and steel tariffs. These were ultimately exempted under USMCA, the successor to the 1992 North American Free Trade Agreement.[8]
Most recently, Mexico was on the receiving end of Trump tariff threats that were ultimately tied to immigration policy. The U.S. ultimately suspended any further tariffs on Mexico when the administration of Mexican President Claudia Sheinbaum agreed to deploy more Mexican troops on the joint border.[9]
By maintaining this strategic reciprocity, Trump’s trade team seeks to create a negotiation environment where adversaries perceive cooperation as the best long-term strategy.[10]
The Impact on the UAE
In February 2025, President Trump reinstated Section 232[11] tariffs on aluminium and steel imports, citing national security concerns. The 25% tariffs further demonstrated his reliance on tariffs as a strategic tool for economic coercion. The decision marks a return to the protectionist measures he first enacted in 2018, reinforcing the perception of tariffs as a long-term policy tool rather than a short-term negotiation tactic.
Noticeably, not all countries were subject to the increased tariffs. Canada, Mexico, and Australia were among those exempted, primarily due to their established security partnerships and prior trade agreements with the U.S., which mitigated concerns over supply chain dependencies. The exemptions clearly serve a geopolitical purpose, maintaining strong economic ties with key allies while focusing tariff enforcement on nations perceived as economic competitors or security risks.[12]
The United Arab Emirates faces significant disruption from Trump’s 25% tariffs. In 2023, Emirates Global Aluminium’s (EGA), the UAE’s premier aluminium producer, sold 550,000 tons in the U.S., its largest global market. Analysts predict that EGA will bear substantial losses due to reduced export volumes, higher operational costs, and potential workforce reductions. The economic repercussions extend beyond aluminium production, affecting broader industrial supply chains and regional economic stability. Bahrain is similarly impacted, underscoring the broader risks facing Gulf Cooperation Council (GCC) economies in light of Trump’s protectionist policies.[13] Navigating these challenges will necessitate proactive economic diversification, enhanced regional coordination, and diplomatic engagement with Washington.
Playing the Game: Rational or Reckless?
Trump’s tariffs are not merely economic sticks but political tools that reinforce his image as a defender of American industry. This approach is not about long-term economic stability but about winning a high-stakes political game where bold moves define his legacy. Unlike his first term, where he faced re-election constraints, his second-term tariff moves may prioritize long-term strategic shifts over immediate political fallout. Trump has surrounded himself with trade hawks such as Peter Navarro and Robert Lighthizer who have repeatedly argued for economic nationalism to rebuild U.S. industry. In the first Trump administration, Commerce Secretary Wilbur Ross led aggressive action to implement the President’s targeted aluminium and steel tariffs.
Trump’s approach is encapsulated in his own words:
“If I said 25 per cent, they’d say, ‘Oh, that's terrible.’ I don't say that anymore... because I say, ‘Whatever they charge, we’ll charge.’ And you know what? They stop.”[14]
This statement reinforces Trump’s game-theory approach to tariffs, the idea that his strategy relies on threat perception and retaliation rather than just static trade protectionism.
To counter the adverse effects of Trump’s tariffs, game theory provides some potential options, particularly Axelrod’s tit-for-tat strategy, to ensure calibrated and measured counteractions while preserving long-term trade interests.
- Reciprocal Retaliation with Conditional De-escalation — Instead of outright retaliation, the UAE could pursue conditional countermeasures, aligning with the tit-for-tat model. By mirroring U.S. trade actions in a controlled manner, the UAE may establish a pattern of reciprocity that incentivizes cooperative negotiations.
- GCC Coalition Building — Coordinating with regional partners such as Bahrain and Saudi Arabia to present a unified negotiation front enhances collective bargaining power, reinforcing the UAE’s negotiating position through a cooperative game-theoretic framework.
- Bilateral Diplomatic Engagements — Engaging in sustained iterative negotiations with U.S. policymakers may facilitate sector-specific exemptions, preserving favourable trade terms while mitigating further economic disruptions.
- Leveraging Global Trade Institutions — Pursuing legal challenges through the World Trade Organization (WTO) signals the UAE’s adherence to structured international norms while applying external pressure on U.S. policymakers.
- Strategic Trade Diversification — Reducing reliance on the U.S. market by fostering alternative trade alliances, especially with Europe and Asia, follows a multi-player game theory model, ensuring supply chain stability while maintaining economic leverage.
The Future of Trump’s Trade Policy
Trump is leveraging tariffs as both economic policy and political branding — reinforcing his image as a champion of American industry. The short-term domestic political benefits from this strategy could be offset by risks that include potential retaliatory trade disruptions and strategic miscalculations. Affected nations must swiftly adapt their trade strategies to protect national interests through effective counteraction and necessary recalibration to ensure their responses to Trump’s “America First” doctrine achieve long-term success. Trump’s tariff-based policies could lead toward a non-cooperative equilibrium resulting in stalled trade liberalization efforts and widespread adoption of protectionist policies by nations. This could have lasting consequences, including:
- Weakening of Multilateral Trade Agreements: The WTO could face diminishing authority because of Trump’s lack of faith in its ability to resolve trade conflicts.
- Shifts in Global Trade Alliances: Nations that have traditionally partnered with the U.S. might explore new trade relationships to deal with economic instability. For instance, The European Union (EU) has established comprehensive trade agreements with Japan, Vietnam, and Australia as part of its strategy to diversify trade relationships.[15]
- Long-Term Market Fragmentation: Global businesses might face reduced operational efficiency and increased expenses as supply chains permanently alter their ability to sidestep tariff-related risks. For example, during the U.S.-China trade war, companies like Apple began shifting production from China to countries like Vietnam and India to avoid tariffs. This restructuring may lead to higher operational costs due to the need to establish new facilities, train workers, and manage fragmented supply chains while also reducing efficiency as production processes are disrupted and scaled across multiple locations.[16]
- Trade fragmentation: Nations could intentionally reshape their trade relationships by adopting protectionist policies, such as imposing high tariffs and import restrictions, withdrawing from multilateral trade agreements, or fostering regional trade blocs to reduce reliance on global networks. For instance, the U.S. withdrawal from the Trans-Pacific Partnership (TPP) and China’s “dual circulation” strategy, which focuses on boosting domestic consumption while selectively engaging in international trade, exemplify how nations can strategically fragment global trade systems.[17]
Conclusion
We are not suggesting that U.S. President Donald Trump trade policies are organized, however, the “America First” doctrine clearly outlines their ideological and philosophical context. They may be best understood through the lens of strategic game theory rather than traditional economic rationale. The application of tariffs functions as a bargaining chip and revenue source while serving as a political tool that reinforces the game-theory frameworks for coercion and commitment. It also provides a concept with which to potentially confront his more aggressive efforts. The frequent alterations and withdrawals of Trump’s tariff orders illustrate how strategic reciprocity guides his bargaining efforts. The effectiveness of his strategy has yet to be determined because retaliatory measures and potential economic declines and geopolitical disruptions might defeat his stated objectives. The success of Trump’s trade strategy will only become clear through the long-term economic and political effects of the ongoing trade conflict.
[1] Munck, G. L. (2001). “Game theory and comparative politics: New perspectives and old concerns.” World Politics, 53(2), 173-204.
[2] Dixit, Avinash K., and Barry J. Nalebuff. Thinking Strategically: The Competitive Edge in Business, Politics, and Everyday Life. New York: W.W. Norton & Company, 1991.
[3] https://www.agweb.com/news/policy/politics/canada-mexico-hit-back-retaliatory-tariffs-u-s-imports
[4] “Economic and Trade Agreement Between the United States and China: Phase One,” Office of the United States Trade Representative, https://ustr.gov/phase-one.
[5] “U.S. to Impose Tariffs on $50 Billion of Chinese Goods,” The New York Times, June 15, 2018, https://www.nytimes.com/2018/06/15/us/politics/us-china-tariffs-trade.html.
[6] Fact Sheet: President Donald J. Trump Restores Section 232 Tariffs, The White House, February 2025. This fact sheet outlines the reinstatement of tariffs on aluminium and steel imports under Section 232 of the Trade Expansion Act of 1962, citing national security concerns. The decision reflects a continuation of Trump's protectionist trade policies and highlights the administration's strategic use of tariffs as both an economic and geopolitical tool. Available at: https://www.whitehouse.gov/fact-sheets/2025/02/fact-sheet-president-donald-j-trump-restores-section-232-tariffs/.
[7] Economic and Trade Agreement Between the United States and China: Phase One, Office of the United States Trade Representative, 2020: https://ustr.gov/phase-one.
[8] United States-Mexico-Canada Agreement (USMCA) Text, Office of the United States Trade Representative, 2020: https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement.
[9] Sevastopulo, Demetri, "Trump says Mexico tariffs ‘indefinitely suspended’ after deal on migrants," Financial Times, June 8, 2019: https://www.ft.com/content/7e97f758-89f3-11e9-a028-86cea8523dc2.
[10] Axelrod, Robert. The Evolution of Cooperation. New York: Basic Books, 1984.
[11] Section 232 of the Trade Expansion Act of 1962 grants the President the authority to impose tariffs and other trade restrictions on imports that are deemed a threat to national security. The law allows the U.S. Department of Commerce to conduct investigations into whether specific imports compromise the country’s industrial base, defense capabilities, or economic stability. If a national security risk is identified, the President can take unilateral action, including tariffs or quotas, to mitigate the threat. Section 232 has been invoked multiple times, most notably under the Trump administration to impose tariffs on steel and aluminum imports. See, 19 U.S.C. § 1862, Trade Expansion Act of 1962.
[12] “Fact Sheet: President Donald J. Trump Restores Section 232 Tariffs,” The White House, February 2025, https://www.whitehouse.gov/fact-sheets/2025/02/fact-sheet-president-donald-j-trump-restores-section-232-tariffs/.
[13] Al-Monitor Staff. “How vulnerable are UAE, Bahrain to Trump’s 25% tariff on aluminium?” Al-Monitor, 2025, https://www.al-monitor.com/originals/2025/02/how-vulnerable-are-uae-bahrain-trumps-25-tariff-aluminum.
[14] "Very Unfair: Donald Trump on Elon Musk's Tesla Building Factory in India," NDTV, February 2025. In this interview: https://www.ndtv.com/world-news/very-unfair-donald-trump-on-elon-musks-tesla-building-factory-in-india-7750962.
[15] See European Commission. (2023). EU Trade Agreements. Retrieved from https://www.eeas.europa.eu/eeas/boosting-eu-indo-pacific-partnerships-chair%E2%80%99s-press-release-following-eu-indo-pacific-ministerial_en) and (https://www.europarl.europa.eu/topics/en/article/20161014STO47381/trade-agreements-what-the-eu-is-working-on)
[16] https://www.vietnam-briefing.com/news/why-apple-is-diversifying-and-looking-to-vietnam-as-an-alternate-production-center.html/ and https://scw-mag.com/news/how-apple-handles-its-china-dependent-supply-chain-amid-global-tensions/
[17] https://tnsr.org/2022/01/the-growing-rivalry-between-america-and-china-and-the-future-of-globalization/
