The 3D-chess Trump trade theory is falling apart

President Donald Trump and his administration have long suggested that the on-again, off-again rollout of historic tariffs was intentionally chaotic, part of a carefully crafted master plan designed to keep America’s trading partners on the back foot. But that dubious theory has been belied by recent announcements from Trump and his trade officials.

Despite a host of tariffs that Trump has imposed, then paused, changed, lowered, exempted and then re-threatened, the president is simply creating “strategic uncertainty,” Treasury Secretary Scott Bessent on Sunday told CNN’s Jake Tapper.

“If we were to give too much certainty to the other countries, then they would play us in the negotiations,” Bessent told CNN.

Trump has at times suggested something similar – that he understands the power wielded by tariffs in a way few others do.

“Tariffs are the most misunderstood thing maybe in any form of business,” Trump said in the White House earlier this month.

Top trade adviser Peter Navarro has described Trump’s trade strategy as a game of “3D chess” that the media and mainstream economists fail to comprehend.

But those suggestions of a coherent strategy behind the tumultuous rollout of Trump’s tariff plans are contradicted by Trump and Bessent’s recent announcements that they’ll set new tariffs for dozens of countries that want to strike a deal but have been unable to get a meeting with the United States during the three-month pause. They’re undermined by the administration’s carve-outs, concessions and pull-backs. And they’re negated by large American companies declaring that they’ll raise prices.

Clock is running out

The 3D-chess theory goes something like this: Trump threatened massive tariffs as a warning that America will grow less reliant on foreign trade. To show he’s serious, Trump made good on his threat, putting the tariffs in place to scare the bejesus out of foreign countries and companies that manufacture goods outside the United States. But to be fair and realistic, Trump hit pause to give trading partners time to come to the table and companies time to reshore their manufacturing.

To some degree, that has happened: The administration says it is in active discussions with 18 trading partners on potential new trading deals that, in theory, could give US businesses access to untapped markets. The framework of a deal with the United Kingdom, announced earlier this month, opened up the British market to some US agricultural producers, for example.

And a number of major companies have made big, multibillion-dollar promises to invest in the United States. For example, Apple committed to a $500 billion long-term plan, much of which was previously in the works, to add manufacturing capacity in the United States.

So if the plan was showing signs of success, why restart the tariffs with only a couple trade deals in hand?

Trump last week said it was impossible to do 150 deals in enough time before the pause was lifted – so his administration would give countries new tariffs in the next few weeks. Bessent this weekend clarified that the original “reciprocal” tariffs as high as 50% that were announced during Trump’s April 2 “Liberation Day” ceremony could be reimposed on some countries — but the administration may instead decided to replace them with regional tariffs at a different rate.

The administration has frequently said 100 or so countries have offered to negotiate on trade to avoid Trump’s tariffs. So restoring initial “reciprocal” tariffs or setting regional rates before most countries have gotten a chance to negotiate undermines the theory that hitting pause would give countries a fair chance to come to the table.

Rising prices

Tariff proponents may say the high import taxes are necessary to incentivize companies to bring manufacturing back to the United States.

Despite some high-profile announcements, that’s by and large not happening. It remains prohibitively expensive and takes considerable time to bring many kinds of manufacturing to the United States. And with the topsy-turvy trade announcements, businesses are uncertain how long Trump’s tariffs will even be in place.

For example, Trump’s administration earlier this month lowered tariffs on China to around 30% from 145% after Trump and Bessent called the high rates “unsustainable.” But the only concessions America appeared to get from China was a roll-back on Chinese tariffs and non-tariff trade barriers put in place since April 2.

Trump has also issued significant tariff carve-outs on foreign-made auto parts and Chinese electronics, which took considerable bite out of his trade war.

“We should not expect any boost to domestic economic activity from tariffs, especially in the near term,” said Seth Carpenter, Morgan Stanley’s chief global economist, in a note to investors this week. “For a business that is contemplating moving production to the US, 30% tariffs might make it cost effective. But if the factory takes a couple years to build and another few to recoup the investment, the CEO needs to be convinced tariffs would will be in place at 30% or higher for the next five years or longer. The newsflow since April 2 suggests no such certainty.”

Meanwhile, American companies have begun to raise prices. Walmart said last week tariffs were “too high” and that it would be forced to pass along some tariff costs to consumers – a fact Bessent acknowledged this weekend. Home Depot said Tuesday it planned to keep most prices the same but would have to raise prices or stop selling some items because of tariffs. Toymakers, footwear makers and many others have said prices are going up, too.

The bond theory

In some social media channels, an even wilder 4D chess theory has emerged.

The theory suggest that Trump started his trade war to purposefully tank the stock market (it very nearly plunged 20% into a bear market in two short months), creating more demand for safe-haven assets like Treasuries that would send rates lower, thus sinking costs for consumers and allowing America to refinance its debt at a cheaper rate. Meanwhile, tariff revenue would help pay down the debt, allowing Republicans to pass a massive tax cut bill that will boost the economy.

But that theory, too, has been contradicted by the fact that the market has rallied since he exempted many electronics from his tariffs mid-May. And long-term bond rates have remained relatively high: Bond prices, which trade in opposite direction to yields, fell further Monday after Moody’s downgraded America’s debt from its perfect AAA credit rating Friday, warning that America’s debt situation is increasingly dire and could be made worse by tax cuts.

The tumbling bond market, in fact, is what spooked the Trump administration in the first place and led Trump to hit pause on the “Liberation Day” tariffs, the administration has conceded. Trump acknowledged on April 9, the day he paused the tariffs, that he had been watching the bond market, which was getting “yippy.” National Economic Council Director Kevin Hassett told Fox News that day that the pause had been previously planned but got “a little extra push from the bond market,” which was saying, “Hey, we don’t believe these guys” on the validity of the tariffs.

So it’s sounding more like chaos theory, not the 3D or 4D chess theory, is the reality driving Trump’s trade war.