Trump's jumbo tariffs: His targets needn't 'chicken out'

Game theory suggests that others can use collusion as a strategy to push the US off its perilous path

- MADAN SABNAVIS

Visualize this scene. A and B are both driving cars, facing each other. Each car has a lane on the left to swerve into, should the driver so want. A is a male with high testosterone levels, while B could be of either gender. A has made it clear that he will drive straight on, no matter what. What are the choices for B? B can also drive straight and crash into A, if the latter does not swerve. As a result, both lose. B can move left and let A call B "chicken" for having chickened out. A and his ego win handsomely, while B loses. The last eventuality would have both acting to avert a collision and swerving to their left, regardless of egos. This appears to be the best strategy.

This is a rudimentary game of 'chicken,' which is often referred to in game theory, made famous by John von Neumann and Oskar Morgenstern. Now, let us put names to the players. A is Donald Trump, who has made his intentions clear. B is a combination of various countries that have been targeted by the US President. Trump has imposed higher import tariffs to correct uneven trade relationships with Canada, Mexico and China already. The EU, UK and India can also be clubbed with this group. Trump has also said that if the Brics bloc tries to deal in currencies other than the dollar, then he would drastically raise tariffs on US imports from its member countries.

With "America first" as its slogan, Uncle Sam is calling the shots. How would economic theory describe this situation?