Reflections on the unfolding US tariffs gambit

Snapshot: This essay explores the 2025 US tariff imbroglio with the aid of game theoretic concepts. It consolidates reflections and comments that I have made in various posts over the last few weeks. In doing so, it reveals how a series of strategic miscalculations by the Trump Administration, particularly its overestimation of America’s centrality in global trade and the decision to grant a 90-day grace period to all countries except China, backfired. Rather than isolating China or compelling allies into bilateral trade concessions, the US triggered a multipolar coordination game. In such as game, nations are incentivised to delay action, deepen ties with one another, and shift away from reliance on Washington. The result is a consolidation of the evolving contours of global trade toward a post-American order. In this context, strategic patience, coalition building, and distributed power are the principal features.

On 2 April 2025, the Trump Administration unilaterally imposed sweeping tariffs on goods from nearly every trading partner of the United States. No surprises given that Trump’s favourite word in the dictionary is ‘tariffs’. The ‘Liberation Day’ announcements in some regards pick up from where Trump 1.0 left off. Within days, however, Trump announced a 90-day suspension for all countries with the exception of China. This exception presaged a spiral of retaliatory measures, with China matching US tariffs tit-for-tat. Ultimately the tariff was escalated to 145% on Chinese goods entering the US and 125% on American goods entering China. In effect, bilateral trade was being ground to a standstill.

Yet while Trump’s move was designed to pressure China and rally the rest of the world into bilateral trade talks with the US, it has had a far different effect. The US has fundamentally misread the international strategic environment, made key errors that shifted the game’s structure against its own interests, and unintentionally facilitated greater international coordination outside its orbit.

From Dominance to Decentralisation

The Trump Administration’s strategy relied on an implicit assumption that the US remained the central, indispensable hub in the global economic system. Trump spoke glowingly of the American consumer being desired by all and sundry, and his surrogates affirmed the presupposition that the American market was the honeypot that none could refuse. In game theoretic terms, the US presumed that it was the dominant node in a star network, capable of dictating bilateral outcomes by virtue of its market size and historical leverage.

However, this assumption no longer aligns with the real-world distribution of trade interdependencies. Error number one.

In 2025, the global economy is poly-centric or multipolar in nature. It has multiple power centres, distributed across the globe. These centres include China, the European Union, ASEAN and the Gulf Cooperation Council amongst others. Importantly too, they are each increasingly interconnected through formal multilateral trade agreements and shared infrastructure. The ‘hubs and spokes’ image that dominates the American conceptualisation of its negotiation position has long been replaced by a more decentred configuration.

In this context, when Trump imposed tariffs but exempted all countries except China, the US created a game environment that inadvertently displaced itself from the centre of strategic decision-making. Error number two. Countries now had every incentive to:

1. Signal their willingness to engage with the US to avoid immediate penalties, as there was nothing much to lose by being seen to be responsive to American belligerence;
2. At the same time, delay meaningful commitments, thereby preserving strategic flexibility and increase pressure on a US that was desperate for publicly announce-able ‘wins’ and ‘deals’. Notional commitments can be made that do not undermine or foreswear the ability of countries to continue their non-US-related activities (next point);
3. Then, in parallel, coordinate among themselves to strengthen alternative trade architectures as short- and medium-term mitigations; and
4. Reinforce ties with China, the largest trading partner for over 140 countries globally.

This resulted in a multi-polar coordination game. In this configuration, the US is decentred. What the Trump Administration failed to recognise was that other players had credible alternatives. These include existing or rapidly deepening trade partnerships with China, ASEAN, the EU and others. Game theory teaches us that when a player has credible outside options, it is less dependent on any one dominant player. That’s what diversification is all about, and the world has long diversified away from US economic centrality. Consequently, the US’s bargaining power eroded not despite but because of its aggressive approach in an environment in which it was already not the central actor. There are likely to be some exceptions, such as Canada and Mexico, which have outsized trade relations with the US when measured as contributions to their GDP or traditional geopolitical allies such as the UK.

https://warwickpowell.substack.com/p/oops-strategic-miscalculation-and