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The Nobel laureate John Nash, building on the work of mathematician John von Neumann and the economist Oskar Morgenstern, laid the mathematical foundations for modern-day game theory by analyzing cooperative and non-cooperative interactions among rational agents. Among large numbers of economic actors, free and fair competition leads to optimal (or nearly optimal) outcomes. But when such competition is disrupted, such as by monopoly power or government intervention, outcomes worsen.googletag.cmd.push(function() { googletag.display('div-gpt-ad-1499653692894-0'); });

Trump’s tariff policy illustrates this point. Suppose that the United States is playing a game with a major rival like China. For simplicity, we will assume that each can choose between two policy moves: high tariffs or low tariffs. If the U.S. and China choose low tariffs, bilateral trade is strengthened, supporting both economies’ growth. As a result, the U.S. and China enjoy a reasonably strong and relatively equal payoff.

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