It’s hard to keep up with President Donald Trump’s trade policies. Every few days a new threat of tariffs or retreat from them emerges. The chaos has Americans and the world wondering whether there’s a method behind the apparent madness.
There is, negotiation experts say. Mr. Trump is employing a specific strategy to wring trade concessions from other nations. But 85 days into his administration, market jitters and commercial realities have begun to set in, limiting his options.
At the same time, the president’s trade policies are not as far out as they might appear. Some economists also blame globalization for some of the same economic problems that Mr. Trump has.
Why We Wrote This
President Donald Trump promises radical economic reforms. Accomplishing his goals may prove harder than expected, given his administration has unleashed so much change in short order.
But confidence in the tools he’s using and how he’s wielding them seems to be waning, according to a recent CBS news poll.
“It’s quite a spectacle for a negotiation theorist to watch,” says Michael Morris, a Columbia Business School professor and author of a new book, “Tribal: How the Cultural Instincts That Divide Us Can Help Bring Us Together.”
Employing “madman theory”
The negotiation strategy he appears to be using is based on a political strategy called madman theory.
The idea is not that President Trump is a madman, but that he acts like one.
“For the strategy to work, you have to be a really good actor,” Mr. Morris says. Mr. Trump has to convince leaders he’s crazy enough to do something that might hurt the U.S. and hurt the other side, too, he adds. “But then you also have to simultaneously persuade them that you’re a reasonable madman who will not punish them if [they] yield to demands.”
Other presidents, notably Richard Nixon, used the strategy in international negotiations. President Nixon tried to make leaders of communist bloc countries believe he was a volatile, irrational pugilist. Fearing an unpredictable response, those countries, however hostile to the United States, might avoid provoking him, he and his advisers theorized. Whether his strategy actually worked remains a matter of debate.
Mr. Trump put it this way in an interview last fall with The Wall Street Journal. Describing his relationship with China’s leader, he said Xi Jinping “respects me, and he knows I’m [expletive] crazy.”
That may explain why the administration cranked up tariffs on China to 145% a week ago. That’s extraordinarily high by historical standards and could boost the price of a $1,000 cellphone to $2,450, some or all of which consumers would have to pay. With at least 3 in 4 smartphones sold in America coming from China, that represents a heavy blow.
Back and forth again
On Friday, the administration changed course, saying smartphones, computers, and some other electronic devices would be excluded from the most recent 125% tariff escalation. That means the $1,000 cellphone would cost a more palatable $1,200, given the 20% tariffs imposed earlier this year. President Trump insists higher penalties for China will come in a different way: new semiconductor tariffs.
On Monday, President Trump hinted that he might temporarily exempt the auto industry from previously imposed tariffs to give the industry more time to move production to the U.S.
These moves have provided great relief to the industry and stock markets, which had been sinking worldwide in recent days. They suggested that Mr. Trump may be flexible on tariffs if markets get too jumpy.
Can he keep investor and consumer confidence?
But the moves also undercut the president’s madman strategy. If he can revise or delay his course even before reaching the bargaining table, he is vulnerable to another force: U.S. investors and consumers.
Mr. Trump acted last week after troubling moves in the U.S. Treasury bond market. Consumer sentiment is also souring, and the president’s approval rating on the economy is slipping despite a resilient economy and falling inflation.
The potential delay of auto tariffs “so clearly contradicts the adamant statements he had made up to that point about him not backtracking,” says Peter Kim, a professor of management and organization at the University of Southern California’s business school.
“Whatever he promises, whatever he threatens, and so on, you’re just not going to believe it as much,” he says. “And so it makes it so much harder to leverage the power you have in negotiation.”
Similarly, it’s not the administration’s economic vision that’s created the most controversy. The idea of bringing manufacturing back to the U.S. has gained popularity since the pandemic exposed the vulnerability of international supply chains.
By focusing his biggest tariffs on China, the president targets a rival many believe should be reined in because of its economic policies. And by talking up the return of factory jobs to America, Mr. Trump directly addresses what four decades of free-trade policies and globalization made worse: the hollowing out of America’s middle class.
“We forgot the worker,” says Olaf Groth, a business and public policy professor at the University of California, Berkeley Haas School of Business. “And so I’m not surprised that we now have a populist president who is speaking to the workers.”
A rocky road ahead
Most criticism of the president’s vision centers on how he plans to get there. Economists say broad tariffs are expensive and counterproductive. Even large swaths of his conservative coalition oppose them because they amount to a tax on U.S. consumers, points out Nate Silver, a pollster and head of the Silver Bulletin.
Even if tariffs were the right way to go, the road to Mr. Trump’s rosy future looks rocky and full of potholes, any of which could veer the economy into a tailspin. If higher prices and tariff inflation won’t do it, then the administration’s budget math might.
Various economic models show that tariff revenues won’t pay for Mr. Trump’s first-term tax cut extensions, let alone the further tax cuts he’s proposing. And that assumes the economy doesn’t slow, which would mean tax and tariff revenues would fall.
“We’re in a whole different ballgame now,” says Mark Zandi, chief economist of Moody’s Analytics. “It’s about the trade war. And I think certainly as long as that war is raging, recession risks continue to rise.”
