The hidden costs of Trump's 'madman' approach to tariffs

Is the trade war launched by Donald Trump the act of a madman or a mad genius?

To the extent Trump’s tariffs are a “negotiating strategy,” as Treasury Secretary Scott Bessent has claimed, are critics missing that they are simply part of the “art of the deal” that will enable America to gain coercive leverage over other states? According to the madman theory of international politics, it is possible Trump’s gambit has a strategic logic. However, there is a crucial flaw with this strategy that will likely cause it to fail.

The madman theory was developed in the nuclear weapons era by the scholars Daniel Ellsberg (the leaker of the Pentagon Papers) and Thomas Schelling (who won the Nobel Prize in economics). Its logic is that some threats, such as launching a nuclear attack against a nuclear-armed opponent, inherently lack credibility because carrying them out would be irrational in that it would cause both the target state and the threatening state great pain. However, if the leader making the threat is perceived as irrational or crazy, then the threat may actually be believable, and the target could decide that backing down to avoid punishment is the prudent option.

As Richard Nixon said in a private oval office discussion with his chief of staff in 1968:

“I call it the Madman Theory, Bob. I want the North Vietnamese to believe that I’ve reached the point that I might do anything to stop the war. We’ll just slip the word to them that ‘for God’s sake, you know Nixon is obsessed about Communism. We can’t restrain him when he is angry—and he has his hand on the nuclear button’—and Ho Chi Minh himself will be in Paris in two days begging for peace.”

Trump’s tariff strategy may follow a similar logic. According to the Yale Budget Lab, Trump’s tariffs could increase prices for the average American household by almost $5,000 just this year. Given the mutual costs Trump’s tariffs involve, his threats may lack credibility on their face, just as many nuclear threats do.

However, to the extent Trump is perceived of as at least somewhat crazy, his threats may be more believable than if he was viewed as rational. In fact, like Nixon, Trump is a self-professed fan of the madman strategy. For example, in a discussion with top cabinet officials regarding the U.S.-South Korea trade deal in 2017, Trump reportedly told Robert Lighthizer, the U.S. Trade Representative:

“You’ve got 30 days, and if you don’t get concessions then I’m pulling out.” “Ok, well I’ll tell the Koreans they’ve got 30 days,” Lighthizer replied. “No, no, no,” Trump interjected. “That’s not how you negotiate. You don’t tell them they’ve got 30 days. You tell them, this guy’s so crazy he could pull out any minute…You tell them if they don’t give the concessions now, this crazy guy will pull out of the deal.”

Trump’s plan to end the U.S.-South Korea Free Trade Agreement in his first term was ultimately foiled by Gary Cohn, his chief economic advisor, who reportedly stole from Trump’s desk a letter that would have made the withdrawal official after Trump signed it. However, with a team of more loyal and pliant advisors installed in his second term, Trump has been able to follow through on his trade war strategy based on the madman theory.

Trump also seems to believe that this strategy is having the intended effect: “I am telling you, these countries are calling us up, kissing my ass. They are dying to make a deal…‘Please, sir, make a deal. I’ll do anything. I’ll do anything sir.’” Indeed, the European Union and countries like Vietnam and Israel have offered to lower trade barriers on American goods in return for the removal of Trump’s tariffs. The U.S. and Britain also just struck a trade deal that ostensibly involves some real, even if limited, concessions by the United Kingdom.

Despite some advantages, however, the madman strategy is far from a panacea and entails significant drawbacks that will likely limit what Trump is able to achieve. One major issue (for which I provided evidence in a peer-reviewed study that conducted surveys of the American public) is that a leader who is perceived as mad is likely to face increasing levels of disapproval among their own domestic public. This can then undermine their bargaining leverage with foreign leaders.

The madman strategy is generally unpopular domestically because the public values competence in leaders, and thus is unlikely to look kindly on a leader it perceives of as actually or potentially crazy. Alexander Hamilton made this argument about John Adams, a member of his own Federalist Party, when discussing the “great and intrinsic defects in his character, which unfit him for the office of Chief Magistrate.”

Richard Nixon said much the same in a private Oval Office conversation in 1973, when he said, “We are never going to have a madman as president, in this office…Ours [system] throws them out…about every four years, if a guy shows that he’s [unclear phrase], out!” That is one key reason why Nixon kept his own attempt to use the madman strategy to convince the Soviets and Vietnamese he was crazy and might use nuclear weapons to win the Vietnam War secret from the American public.

This reasoning helps explain why Trump’s trade war is unpopular domestically. Moreover, well-known psychological biases make average citizens more averse to losses than they are attracted to gains. In the case of a trade war, this means the public is likely to be wary of paying higher prices than they were previously in return for the theoretical promise of greater domestic production in the future. This is especially the case given that Trump’s promises to tame inflation was one of his campaign’s most effective selling points in winning the presidency last fall.

The domestic unpopularity of the madman strategy can undermine a leader’s leverage in negotiations with other states, as foreigners may doubt the leader will have the political capital to enact or maintain the threatened policies in the short, medium, or long term. This is what appears to be happening in the case of Trump’s tariffs, as the strongly negative reaction among the U.S. public and business community—the fact that that, in Trump’s words, “they were getting a little bit yippy, a little bit afraid”—forced the president to dramatically reverse course and pause the tariffs for 90 days before even a single deal was struck, undermining his bargaining leverage.

Some foreign governments may now question whether Trump will be willing to reimpose the tariffs even if his terms are not met. As a New York Times article put it, “[Chinese leader] Xi [Jinping] learned that his adversary has a pain point.” Just this weekend, the U.S. agreed to temporarily lower tariffs on China from 145% to 30% without yet receiving any specific, substantive concessions in return. By backing down, Trump may also have revealed that he is less crazy than he would like adversaries to believe, which was also the fatal flaw of Nixon’s attempt to use the madman strategy to win the Vietnam War.

In sum, while critics who claim the madman theory has zero utility are somewhat overstating the case, it does have crucial flaws that will severely undermine what Trump will likely be able to achieve in the realm of international trade. Moreover, the harsh economic costs of this strategy and its blatant inconsistency with long-held American values championed since World War II make it a clearly unwise course to pursue moving forward.