SEEKING A COOPERATIVE EQUILIBRIUM?

Game-theoretic models of cooperation are more robust at making sense of sustaining cooperation once it emerges than they are at dealing with restoring cooperation once it's broken down.  In the Popular Perspective, there's a much-misunderstood strategy called Tit For Tat, in which a player cooperates on the first round, then does to other players at time t what other players did to them at time t-1.  That strategy has no memory, thus, although it works well when it encounters other cooperative players, it is not helpful at leading others back to being cooperative once somebody defects.  And defection is a thing.

Thus, typically, the serious student of game theory will quickly learn about the equilibria in repeated games involving the grim strategy, in which once somebody defects, the player defected upon will never again cooperate.

Thus, the fundamental problem of starting a trade war, as Paul Krugman notes.

I didn’t really think we were going to have a trade war. What I thought would happen, instead, was a bit of kabuki: America’s major trading partners would make cosmetic concessions – perhaps with some lucrative payoffs to Trump businesses on the side – that would let Trump proclaim a “win”, and trade would go on much as before.

The reason I expected this relatively benign outcome wasn’t that Trump would get or take good advice. It was, instead, the expectation that big money would talk: corporations have invested trillions based on the assumption that an open world trading system, permitting value-added chains that sprawl across national borders, was going to be a permanent fixture of the environment. A trade war would disrupt all these investments, stranding a lot of capital, and I thought big business would get either manage to get that message through to Trump or at least get it through to Republicans in Congress, who would act to limit his room for maneuver.

That is, all Our President's pronouncements about being screwed by other countries' imports was cheap talk, but talk that might change the behavior of other countries in symbolic rather than substantive ways.  Instead, it's beginning to look a lot like tit for tat.

So far we’ve had only small skirmishes in what might be the looming trade war, but the effects don’t seem trivial to soybean farmers already facing sharp price cuts and steel users already facing much higher costs. If the trade war happens, expect to see many, many more stories like this.

O.K., there’s no certainty that any of this will happen. In fact, I still find it hard to believe that we’re really going to go down this path. But I also don’t have any plausible stories about what’s going to make Trump stop, or induce other big players to give in to his demands.

Put simply: once cooperation breaks down, restoring it is hard.

Bart Oosterveld, director of the Global Business & Economics Program at the Atlantic Council, said the tariffs would “benefit a few at the cost of many.”

“If you are still working in Youngstown, Ohio, and your plant shut down a few years ago and it reopens, you have your job back and it make you happy and everybody else’s prices for a variety of things from cars to cameras to tractors for the farmers go up slightly – but not to the degree that will make people change their vote,” he said.

Oosterveld said there is “confusion and anger” in Europe surrounding the Trump administration’s use of the “national security argument” to make the case for the tariffs.

“You don’t really expect that argument to be used against long-term allies,” he said. “In the background, in Germany, there’s concern about how this might affect the car industry over time.”

Marczak said that Canadians “overall” share Canadian Prime Minister Justin Trudeau’s “outrage” over the tariffs.

“It’s similar with Mexico, too. I mean, Mexico is an incredible ally of the United States, a national security partner of the United States,” he said. “For both of our North American allies, this is really seen as an affront. Justin Trudeau announced a dollar-for-dollar retaliation and he announced a comprehensive list of countermeasures.”

Cato's Dan Ikenson suggests that there might be a relatively straightforward restoration of cooperation.

Congress abandons its legislation to block [imported electronics from] ZTE, which gets back in business (with conditions); the U.S.-China tariff war is called off; China signs purchasing orders for $100 billion to $200 billion of U.S. exports; the steel and aluminum tariffs on Canada, Mexico, and the EU are removed; and the NAFTA negotiations are restarted and concluded before the midterms. This gives Trump two major pyrrhic victories that will reinforce his greatness to his base.

Seems to me these are the only outcomes that could remotely explain (if not justify) the ride Trump is taking us on. I see it as misguided, but not irrational.

That appears to be the logic of Our President's court intellectuals, if you permit me an impertinence: it's not about tariffs for their own sake, it's about tariffs as a way of convincing the other trading partners to rewrite the international trade agreements in ways that look more favorable to United States commercial interests.  (Or, funnily, you get the kind of industrial policy that the likes of Barry Bluestone and Robert Kuttner and Robert Reich were peddling in the 1980s.)