Donald Trump’s formula to make decisions in economics

“He made our country very rich through tariffs and talent,” he said weeks ago in his inaugural speech. A few days later, in the Davos World Economic Forum, Trump explained his concept on rates, which this week put on the table for the cases of Mexico, Canada and China: “My message to all the companies in the world is very Simple: come to manufacture your product in the United States and we will give you one of the lowest taxes of any nation in the world. But if they do not manufacture their product in the US, then, very simply, they will have to pay a tariff, which will direct hundreds of billions of dollars and even billion dollars to our treasure to strengthen our economy and pay the debt ” .

Thus, Trump’s concept on rates may deserve to be analyzed within how the decision -making process of a president and his economic team is through two instances. Let’s see.

First, the US president thinks that These taxes can be the source of resources for tax collection.

Second, Trump thinks threat to implement rates to other countries eventually persuad to be aligned with the interests of the United States.

An example of the latter was what happened in the week when it announced that it would originally impose 25% rates to products that enter American soil from Canada and Mexico and, at a few hours, the measure was postponed for 30 days: the Prime Minister Justin Trudeau announced that it would allocate US $ 1.3 billion to take care of the borders and stop the admission of narcotics (fentanyl) and Claudia Sheinbaum mobilized 10,000 members of their gendarmerie also at the limit of the countries.

So far, point for Trump.

The problem is complex when it shows that for this scheme to be successful, one of the two requirements is automatically excluded when the other is met: more collection or more domination is achieved, but not both at the same time.

In addition, other inconveniences arise: the threat (to establish rates) will be effective if the other countries believe that Trump will take that measure not as transitory but as a permanent source of resources and that the US economy becomes capable of producing avocados, gas, gas, Autopartes and chips, to say some examples of the products that matter from Canada, Mexico and China (the rates to China have not been suspended and remain in force). Not to mention the labor market, where questions appear there, for example, if Trump voters are willing to do the work of Hispanics in the countryside or bathrooms, or if they will simply sit from crossed arms waiting for quality jobs .

The theory says that Trump changed the game: that of the prisoner’s dilemma for that of the chicken.

In the first, politicians are committed to cooperation because they know that without the help of one and the other they will remain with nothing. Thus they reach the best suboptimal result.

In the second, let’s say that two cars stop in front and begin to accelerate about to coaltize one with the other. The one who first deviates, the one who for fear of a shock is eliminated but may be released life loses.

Trump is in that game. The idea is that one of the two convinces the other who is so crazy that It will risk everything With winning and the other then reconsiders, backs down.

In this last game there is no cooperation and it is only worth transmitting that iron, hard position. It was what Trump did with Canada and Mexico, disciplining the rest not by an agreement but for his reputation that he is able to accelerate the car and collide in front.

In the week, several articles in American media explained why McKinley’s example may not serve Trump. In 1900, the weight of public spending was 3% of GDP and today is 23%. And the rates were equivalent to almost 50% of the collection and today only 1.9%.

Another reason is that McKinley himself changed his mind. The Congress, before assuming, had approved an increase in rates that in any case gave margin to negotiate agreements with commercial partners and lower them 20% if those countries did the same with US products. McKinley thus appointed the first American official who negotiated with France, Great Britain and … Argentina. “The cause is not the rates but our ability to produce more”he said before being killed.

In economics ideas matter but also understand the decision -making process.