Oops! Strategic Miscalculation and the Evolving Global Trade Game

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.

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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.

China holds the cards, because China makes the cards.

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.

The Strategic Cost of the 90-Day Grace Period

Perhaps the most consequential misstep was the 90-day grace period extended to all countries except China. What might have been intended as a strategic wedge to isolate China instead reshaped the game in ways that favoured all other players and further weakened the US’s position. This decision transformed a high-pressure bargaining game into a delayed coordination game. In this case, the dominant strategy for most countries was to wait, watch, and coordinate quietly with others.

While the US continues to conduct itself as if they are engaged in a bargaining game, everyone else has hedged to frame their strategies in the context of a coordination game in which they each have agency.

In repeated game theory, delaying moves in a scenario with uncertain payoffs often becomes optimal. This is especially so when the perceived cost of waiting is lower than the cost of misplaying a premature move. In this instance Trump’s 90-day hiatus removed the immediacy of decision-making, allowing other countries to stall. It also created the temporal space in which bilateral trade partners could feign cooperation with the US while pursuing other strategies. Unsurprisingly, many re-engaged with China or joined efforts to mitigate the impact of the US’s actions.

Take for example the following. In recent days, Japan and Hungary rebuffed Washington’s attempt to force them to decouple from China. This is quite remarkable given that Japan has long been subordinated to the US in geopolitical terms. Few can forget Japan’s caving in to Washington at the Plaza Accord. As for Hungary, this too shows some interesting dimensions. Hungary’s Prime Minister Viktor Orban is politically aligned with Trump, broadly speaking at least. There are strong philosophical sympathies. Yet, Hungary was not willing to jettison its economic interests in the face of American pressure. At the same time, the EU resumed economic talks with Beijing, while holding fire on its own retaliatory tariffs aimed at American goods. The UK inked a Free Trade Agreement (FTA) with India, pointing to these nations' willingness to forge trade relations outside of America’s orbit. ASEAN initiated internal coordination and, at the same time, deepened ties with China and the Gulf States. Japan, South Korea, and China met to revive stalled trilateral FTA talks. Meanwhile, ASEAN+3 finance ministers reaffirmed commitments to open and multilateral trade, and to take coordinated actions to ward off any macro downside risks of Trump’s tariffs.

The Trump Administration’s moves did not isolate China. Rather, they inadvertently triggered a counter-coordination game, where everyone else worked to insulate themselves from US pressure and build alternatives. What Trump’s advisors, including Treasury Secretary Scott Bessent, appeared to misunderstand was that although China’s trade surplus with the US is large in bilateral terms, it represents less than 2% of China’s GDP. This is an amount equivalent to just one year of organic household consumption growth in China, even assuming prevailing rates of household savings. China has room to absorb shocks and ride out the standoff, even without counting investment-driven growth via fiscal stimulus and monetary easing and organic development of trade with the rest of the world.

China’s Central Role in Shaping the Strategic Response

Crucially, the Trump Administration underestimated China’s resolve and strategic foresight. Rather than caving to pressure, China responded immediately (suggesting anticipation and pre-planning), proportionately and signalled a clear willingness to absorb short-term adverse economic impacts in defence of sovereign decision-making. Such signalling is a crucial mechanism, as it shapes expectations and changes the payoffs for others.

Had China capitulated, the credibility of resisting US pressure would have collapsed for everyone else. Instead, China’s firm response provided protective cover for other nations to resist as well. Its refusal to blink. China established itself as a credible counter-anchor. In doing so, China made it strategically safe for other countries to hedge against the United States and, in many cases, to align more closely with China.

Beijing’s commitment to reciprocal retaliation also ensured that the US was now locked in a zero-sum game it could not win easily. Washington’s inability to bring China to heel despite the full deployment of tariffs was not just a bilateral failure. Rather, it sent a clear message to the world: the US could no longer compel submission. In turn, this enabled and encouraged coalition-building efforts across Asia, Europe, and the Global South.

ASEAN+3 (China, Japan and ROK) Finance Ministers have agreed to back a multilateral trade system against headwinds, and coordinate to mitigate risks.

The Consolidation of a Post-America World

The 2025 trade crisis has shifted from a simple two-player zero-sum contest (US vs China) to a multi-player coordination and bargaining game. In such a configuration, the payoffs of each nation depend not only on their own actions but on the actions of all others. The 90-day pause encouraged every nation to hedge. It was sensible for them to explore discussions with Washington without committing, while simultaneously hedging with China and multilateral trading groups.

The Trump Gambit provoked a series of unintended consequences and dynamics, all of which have served to strengthen multilateral coordination and weaken America’s unilateral hand. We have seen the emergence of strategic delay from nations because delaying commitment - to the US in this case - would allow them to gather more information and seek how other countries respond. By communicating with each other, it became clear that coordination was a stronger hand than bilateral capitulation. We thus saw counter-coordination. When an erstwhile dominant player pursues unilateral actions, other countries are strongly incentivised to coordinate amongst themselves to counterbalance that power. This is a classic case of coalition formation in cooperative game theory. American messaging has also created a credibility gap. By almost immediately suspending its aggressive tariffs, America’s credibility was undermined, leading others to discount its threats and seek alternative paths.

By mid-May 2025, about halfway through the 90-day grace period, not a single bilateral agreement has been reached. While Trump touted that “70 countries have reached out,” an unverified claim, what is so far clear is that none have been willing to capitulate. Instead, it seems that most were playing a waiting game, knowing that China would not move first and that the US could not sustain internal economic pressures indefinitely. Some may strike bilateral agreements in the not too distant future, but one suspects this will be in the minority, in terms of both the number of countries involved and the economic scale of the trade relationships involved. The warnings from domestic retailers to the White House about looming goods shortages by July have echoed not just across those inside the Beltway, but across capitals elsewhere in the world, including in Beijing.

The 2025 tariff imbroglio has revealed, again, the new contours of today’s international political economy. Economic focal points and power are increasingly diffuse. The US, once the uncontested centre of global commerce, is now just one player. To be sure, it is a large player, but its position of unilateral authority is no longer supported by material realities. By assuming a central role that no longer exists, and by acting in ways that encouraged other nations to coordinate among themselves, the Trump Administration consolidated a shift toward post-American trade governance.

In this environment, no country wanted to be the first to fold to US demands, and none needed to. China’s discipline in responding proportionately (never escalating first) only enhanced its credibility and strategic position. The 90-day exemption, which was intended as leverage, backfired by giving everyone else time and cover to build collective alternatives.

Unintended Consequences

The Trump Administration’s punitive and unilateral tariffs actions in 2025 have not reshaped the global trading order in its favour. The self-promoted ‘Liberation Day’ actually served to clarify the contours of the world as it now is. The international political economy is no longer one in which the US is the central player. Add to this strategic miscalculations, most notably the 90-day grace period, and the tactical dynamics in effect shifted incentives in ways that encouraged delay, hedging, and multilateral coordination. Rather than reinforcing American primacy, the negotiating gambits revealed its erosion.

The emerging situation can be best understood as one in which strategic patience, coalition building, and distributed power are prevalent features. As the US scrambles to re-engage with China in Switzerland, it does so not from a position of strength but from necessity. The rest of the world, meanwhile, continues to adapt to a multipolar reality. The rest of the world knows that no single player can dictate the rules of the game, and that strategic coordination is not only possible but increasingly preferred.