Trade War and the Madman Theory: A Personal Reflection

As a trade attorney born in China and now practicing in the United States, I find myself caught between two worlds. Growing up, I saw firsthand how China’s rise as a manufacturing powerhouse shaped global trade. Now, working in the U.S., I help businesses navigate the very policies that govern this relationship. The latest wave of tariffs announced by President Trump on February 1, targeting Mexico, Canada, and China, has only added to the uncertainty. It has also made me reflect on how shifting trade policies impact businesses and the people caught in between.

I can’t help but reflect on a negotiation seminar I took in law school, where we studied the Madman Theory, popularized by Richard Nixon. The theory suggests that acting unpredictably or being willing to take extreme actions can create leverage. If your opponent believes you might “blow it all up,” they may feel forced to make concessions. This strategy clearly echoes Trump’s approach to trade policy.

Trump’s sudden tariff announcements and policy shifts often leave businesses, trade partners, and even his own team guessing. He uses social media, like X (formerly Twitter), to make these announcements. In fact, I joined X because it became the quickest way to stay informed about his trade policies. On more than one occasion, I have advised clients about impending tariffs, only to see a post on X from the President reversing course an hour later.

While unpredictability might work in a one-off negotiation, I question its effectiveness in global trade. Tariffs are intended to bring manufacturing back to the United States, create jobs, and reduce the trade deficit. But what I see in practice is businesses struggling to adapt. Domestic manufacturing is not a feasible solution for many industries because it requires significant time, investment, and capacity that does not currently exist.

I have seen businesses go bankrupt due to these policies. Many small and mid-sized companies cannot absorb the increased costs of tariffs or restructure their supply chains quickly enough to adapt. Some have been forced to shut down after receiving millions of dollars in unexpected bills, struggling to keep up with the constant changes in trade policy.

The unpredictability of these tariffs also makes it difficult for businesses to plan ahead. Many companies have invested heavily in nearshoring to Mexico as a way to mitigate risks from the China trade war. Now, with Mexico and Canada facing tariffs too, this raises the question: How can a business develop a long-term plan when changes in administration bring sweeping trade policy shifts?

I wonder if Trump’s actions are impulsive or part of a calculated strategy. If it is the latter, it reflects the Madman Theory in action. Even so, I doubt this approach works for something as complex as global trade. Trade, at its core, is meant to benefit everyone. It allows countries to focus on what they do best and trade for what they need. Modern manufacturing depends on global cooperation, and it is not something that can be reshaped overnight. Tariffs disrupt this system, raising costs for businesses and consumers alike.

In the short term, the costs of these tariffs will fall on consumers and businesses. Companies will need to spend more time and money on restructuring, with no assurance of stability. The unpredictability of these policies only adds to the challenges they face.

Trade wars do not have winners. While one country might claim short-term victories, everyone shares the long-term costs. As a trade attorney, I believe trade should focus on building relationships and fostering mutual benefit. Unpredictability might work in isolated cases, but stability and collaboration are the foundation for lasting prosperity.