Is Donald Trump going to risk throwing the global economy into crisis by enacting the gargantuan tariffs he’s proposed?
Or is he just pretending he’s willing to do that to strike a better deal?
On trade and many other issues, it’s clear Trump enjoys being seen as an unpredictable and dangerous figure and believes that image helps him intimidate others into giving him what he wants — a belief akin to Richard Nixon’s “madman theory.”
This theory that Trump’s most extreme threats are play-acting or bluffs is in some ways comforting. But there are real risks to having a president so committed to the madman bit — if indeed it is a bit.
Taken at face value, Trump appears to believe his tariffs have no downsides. He says that they’ll boost domestic industry, bring jobs back to the US, and raise substantial revenue. Tariff, he’s said, is the “most beautiful word in the dictionary.” He’s proposed 10 to 20 percent tariffs on all imports to the US, and has discussed 60 percent or higher tariffs on Chinese imports.
Yet economists and financiers have warned that if anything like Trump’s tariff proposals was actually implemented, they could well cause a trade war, resurgent US inflation, and a market panic, tanking the US and the global economy.
Many in the American business and finance elite dearly hope Trump understands these concerns, is bluffing to try and win concessions from other countries, and will scale back his tariffs to a more reasonable level once he’s sworn in.
And a story this week from the Washington Post’s Jeff Stein seemed to back that theory up. Stein reported that Trump’s advisers were considering scaling back his tariff plans; that rather than imposing them on all imports, they might limit them to “certain sectors.”
The problem? Very quickly, Trump heatedly denied the story, calling it “wrong” and “another example of Fake News.”
Of course, that’s what he would say if he was bluffing. So what’s really going on?
Trump’s worldview: Zero-sum conflict, dominance vs. weakness
As I’ve written, Trump views the world in terms of zero-sum conflict, dominance vs. weakness, leverage, and reputation. He believes that by making threats, he can intimidate other countries into changing their behavior. He also likely believes that seeming irrational and dangerous strengthens his bargaining position, particularly against smaller countries, since the US has such an advantage in power over them.
Nixon’s madman theory is a precedent to this kind of thinking. As Dan Drezner, a political scientist at the Fletcher School of Law and Diplomacy at Tufts University, recently wrote, Nixon believed that if he seemed dangerous — like he’d be willing to do anything, including using nuclear weapons — he could intimidate foreign adversaries like the North Vietnamese into concessions.
Trump may well be applying the madman theory to trade negotiations as well, with his mega-tariffs serving as his nuclear threat. If so, he’d see his reputation for belligerent unpredictability as an asset — which explains why he’d hotly push back on any reports that he’s actually backing down.
The madman theory explains a lot of Trump’s behavior in his first term — recall how he threatened to rain “fire and fury” on North Korea before eventually pursuing a deal with Kim Jong Un. On trade policy specifically, Jonathan Swan reported for Axios in 2017 that Trump explicitly told aides this was his strategy, urging them to tell foreign leaders that “if they don’t give the concessions now, this crazy guy will pull out of the deal.”
The idea that Trump is really just play-acting madman is a somewhat comforting belief. It would imply that because Trump privately is well aware his tariffs could create global economic chaos, he won’t actually go through with them — that he’s only crazy like a fox.
And maybe that’s true and it will all work out fine.
But there are also some not-so-comforting aspects to the madman interpretation of Trump’s actions.
Three reasons not to be too comforted by the madman theory
The first risk is that foreign leaders have also concluded Trump’s most extreme threats are bluffs — and that this may make him feel compelled to actually follow through, to some extent, to reestablish his credibility.
This is a dynamic we saw play out in Trump’s first term. A few years in, foreign leaders had generally taken Trump’s measure and concluded he wasn’t as dangerous and unpredictable as he sounded. The madman strategy doesn’t work if everyone else understands you’re just pretending. And Trump got annoyed at one country in particular that he felt was acting increasingly provocative: Iran, which had been locked in a shadow conflict with the US.
So, in a January 2020 incident that has been largely forgotten by the general public, Trump had one of Iran’s top leaders, Qasem Soleimani, assassinated. This was a shocking and extremely provocative action, which violated norms against targeting top foreign government officials. But as I argued at the time, it didn’t necessarily signal Trump was truly a war-craving madman. He was trying to reestablish dominance in the relationship with Iran, by proving he really would follow through on his threats.
So even if Trump’s larger strategy is a bluff, we could be in for a bumpy ride as he tries to prove that he’s not actually bluffing.
That leads us to the second risk — that Trump could be too successful at pretending to be crazy, and cause a market panic from which it may be difficult to recover.
The current consensus among investors is that, though Trump is serious about tariffs, he couldn’t possibly be serious about the mega-tariffs he’s actually proposing. As mentioned, foreign leaders also believe this, and Trump seems to want to change their perception.
But it’s very difficult to send a credibly intimidating madman message to foreign leaders while at the same time sending a reassuring message to markets. So if investors end up concluding that they’ve been underestimating the chances Trump actually means it, damage to the economy could ensue, involving either a market panic or prices spiraling higher.
Finally, the third risk is that the madman theory is simply wrong in the case of Trump and tariffs. That is: Maybe he actually is tariff-pilled, and fully means what he says.
Sometimes world leaders simply get bad information, become convinced of bad ideas, and become emboldened to wave away risks by assuming the worst won’t happen. For instance, Vladimir Putin apparently believed (like most outside analysts) that the Ukrainian government would collapse quickly after he invaded — if he knew the war would be so lengthy, costly, and deadly, he may not have started it. The same holds true for George W. Bush’s hubris in launching his war in Iraq.
So perhaps Trump isn’t knowingly playing a dangerous game. Perhaps, in his own mind, he doesn’t actually think the economic risk is that real.
Now, there is a gray area between “Trump means it” and “Trump is bluffing.” Trump might currently mean what he says, but in practice, he could be convinced to change course by pleading advisers or plunging markets.
In Trump’s first term, his advisers often talked him out of ideas they viewed as dangerous and irresponsible. But sometimes, Trump pressed onward anyway. Throughout his attempt to steal the 2020 election, he appeared to inhabit a different factual universe, had a different conception of what he could get away with, and stopped listening to voices counseling caution.
If I were to guess, I’d say Trump is probably either bluffing or could be talked down. But am I totally sure? I can’t say that I am, and I don’t think anyone else can claim to be totally sure either.
And that may be exactly what Trump wants.
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