Tit for Tat - Game Theory and Trump Tariffs

Professor Robert Axelrod did not invent Game Theory, nor the now (in)famous Prisoner's Dilemma which is often used both in corporate away days and Real Life(tm).

As professor emeritus at the University of Michigan, what he did in 1977 was to create a competition in which participants would contribute computer code to "play" the Prisoner's Dilemma, to see if it was possible to objectively codify the most efficient way to "win".

In the event, the Ukranian-born (irony mode "activated") mathematician and psychologist Anatol Rapoport delivered the winning algorithm in a handful of lines of elegant code. With literally two rules he showed what economists would describe as an "efficient" solution to the dilemma - Tit for Tat.

1. Initially, co-operate
2. After each round, do exactly what was done to you by the other party.

Basically, cooperate immediately after they cooperate, betray immediately after they betray.

Simple, brutal, unforgiving, objective, rational, potentially violent, and eventually, the most effective.

Fast forward through to today, where everone is asking if they should respond to Trump's economic handgrenades, if he is playing 4d chess, or is it merely a brusque attempt at Madman Theory in action.

What Axelrod and Rapoport teach us is that it probably doesn't matter. If applied in a blanket way, tariffs are a form of mutually assured destruction. Ironically, if counterparties like the EU apply countermeasures in a thoughtful way, it is actually a nuanced version of the Prisoners Dilemma, as they will be applied in such a way as to mitigate pain on their own citizens, something Trump has made no attempt so to do.

tl;dr hit back, hit hard, and for maximum effect, hit smart.