Trump’s policy on tariffs isn’t random. In a calculated attempt to increase his negotiating power, he is intentionally projecting an unpredictability.
The aggressiveness of his tariffs, and the economic provocation that he has made are not isolated errors.
These are his favorite negotiating instruments. He calls it “the art and science of the deal”.
This does not necessarily mean that the man will succeed.
Knowing the reasons for his decisions can help you see them from a new perspective, particularly at a time when global anxiety and fear are on their highest level.
Trump’s Strategy: “The Madman Theory”
Daniel Ellsberg introduced the concept of “the rationale for a negotiation” in a late 50s lecture. In some negotiation situations, he argued rationality can be an advantage.
Thomas Schelling, Nobel Prize-winning economist and author of “The Art of Negotiation”, elaborated on his earlier statement that being calm and rational in negotiation isn’t helpful.
It is possible to gain a tactical advantage by acting “mad” or unpredictable.
Henry Kissinger advised Nixon to take this course of action. Nixon wanted to show the Soviets that he could be unpredictable and start a war with a nuclear weapon if they did not pressure North Vietnam into surrendering.
Nixon’s failure was due to his inability to convince people that he acted irrationally.
They knew that he was not.
Donald Trump seems to have openly adopted the Madman Theory a century after it was first proposed.
He calls himself “a little crazy”. This theory can be easily verified by a quick look at Trump’s bio as “The Apprentice”, the character who commands the show.
Maybe Trump learned from Nixon’s mistakes. His threats are direct and loud.
Tariffs, his nuclear weapons. Trade wars do not aim to be effective or rational.
These are meant to scare you.
Trump is keen for the world to know that he’s a US President who will not only inflict suffering on others, but on himself as well.
Trump’s economic hardship isn’t a failure. This is Trump’s message to the world: I can do whatever you believe I am incapable of.
Tariffs: the best tool to disrupt
Trump’s approach is blunt and deliberately blunt.
The impact of tariffs on entire economies is not very precise. Prices rise, supply chains are disrupted, and the stock market is panicked.
This would be viewed by traditional policymakers as an excuse to alter course.
Trump views it as proof of his incapacity to be reasoned. His threats become more credible the more markets suffer.
Chaos isn’t random. This chaos is part of a strategic plan that requires opponents to act fast in order to prevent greater losses.
Trump wants to make the costs of delaying impossible.
It’s okay if the economy suffers collateral damage. He can still claim success if markets rebound later. He will say that the system has failed and not him if they do.
Will Trump be successful?
Leaders must create fear in their followers without damaging trust.
Trump fails to keep this balance. Trump threatens, contradicts and backtracks. Coercion that begins with confusion often leads to coercion.
Most world leaders are familiar with Trump’s game plan. He is more predictable because of his past behaviors, so acting crazy again may not be enough to intimidate anyone.
Trump’s behavior makes him look like a lunatic, which is not conducive to building trust in the event of a successful deal because people don’t believe he will keep his word.
As an example, Trump celebrated publicly his trade deals with Mexico and Canada before imposing tariffs on these nations.
The theory also states that he is unpredictable.
The Madman Theory is based on ambiguity. As soon as you start to advertise your madness it will no longer look real.
In 2017, when Trump threatened North Korea, “fire and Fury”, the bluff had been called.
Trump admitted later that he thought Kim was the true madman. This reversal is a risk.
This strategy is most effective in autocracies where courts, the press or public opinion cannot control erratic behaviour.
Trump’s test of America’s institutional strength
This theory is most effective in situations where there are no constraints on the leaders.
Fear and uncertainty are the foundations of dictatorships.
Democracy, however, is built to withstand pressure and not collapse.
Trump is aware of this. Trump understands this.
It is the same logic that underlies all of the legal actions to remove Fed Chairman Jerome Powell.
Trump’s anger isn’t just about the interest rate. Trump is angry at the Federal Reserve, because the institution is built to resist pressure.
Trump sets the stage by pushing through cases that weaken the protections of independent agencies. In the future, monetary policy may be dictated from the Oval Office.
No independent board. Economic orthodoxy is not allowed. Only loyalty and obedience.
Consider how Trump’s inner circles are openly discussing this. Others have already laid out the legal pathways to turn the Fed into another executive branch.
The fact that he has been teasing about running for the presidency again, even though he is not allowed to do so legally, adds further evidence of his larger plan.
Trump’s plan has evolved since his first campaign for President.
Trump didn’t rise up the political ranks.
The businessman knows the value of uncertainty in negotiations.
He has never been a member of any political party. The public and media have been convinced that his way of government is the only one.
Market panic: Why it’s part of the plan
The stock market is down sharply since the start of this year as Trump’s trade tariffs have increased.
Fears of inflation are back. Investors are jittery.
Commentators have warned that the government is shooting themselves in the foot.
In the context of Trump’s work, panic on short term serves as a tool to achieve a longer-term objective.
Fearful markets feed the perception of an irresponsible president, who is not controlled by conventional economic logic. Allies are kept guessing.
This undermines predictability, on which both domestic and international institutions depend.
It is not because Trump’s actions are self-defeating. Instead, they have been judged using the wrong metric.
His success is measured by more than stability. His seriousness is proven by his instability.
It’s because he has been switching back and forth so much lately.
He announces tariffs to be relaxed for a second, and then changes his mind. He announces that some of his policies will be relaxed, but then changes his mind.
Negotiators wonder what other things a President is willing to do when they see him destroy his own market without blinking.
Endgame
The Madman Theory views negotiations at the end as a zero-sum game.
Histoically, however, the most transformative international deals have been achieved through collaborative and mutually-beneficial negotiations, rather than by confrontational threats.
Here’s why Trump’s plans could end up the same as Nixon’s
The most important thing to remember is the logic that underlies the strategy.
There are two possible outcomes if this plan is Trump’s.
Either the plan works and America is able to force better terms of trade from unwilling partners. If it doesn’t work, Trump will be forced to withdraw.
Markets will adapt in either case. Uncertainty is not liked by businesses, but they quickly adapt to it.
It’s possible that the short-term damage we are experiencing now will not last, particularly for global diversified businesses who know how to work through noise.
The ICD published this post: ‘The Madman Theory,’ decoding Trump’s unpredictable political playbook.
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