Trump's 3D Chess Game
My 6 thoughts of the tariff game Trump is playing
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If you have been following the US politics closely, you may have heard the term "3D Chess Game" being thrown around describing the type of game Trump is playing with other countries using tariff.
Some even calls it "4D Chess"
Whatever the dimension you think he is playing at, I'd like to remind his supporters that he is still on planet Earth.
That means, his brilliant 4D Chess game may work on Mars, while he is still on Earth, no one can defy gravity.
It also doesn't mean he isn't playing "2D Chess" game though.
After the long awaited agony waiting for April 2, he dubbed as "Liberation Day", Trump finally announced the tariffs he intends to charge for each country US does business with.
I've been reading the tea leaves, watching closely the messages he and his advisors are sending.
Allow me to unpack and share my views on the game he is actually playing.
My 6 thoughts of the tariff game Trump is playing
#1 - Dismantling WTO
Almost 70 countries have called the White House to discuss their trade policies.
Despite what Trump has flip-flopped over whether tariff is a negotiation tool, the latest Press briefing shows he is very much looking to make deals - White House Invites Tariff-Targeted Countries to Bring ‘Best Offers’
Watch it here:
Attempting to get better trade terms is a given with tariffs.
I'm not going to point out the obvious here.
My guess is that Trump wants to set up trade agreements with each country.
Bypassing the WTO - World Trade Organization, the US will be able to dictate what it wants, when it wants.
In the past few years, WTO was losing it’s effectiveness over dominant countries like the US & China:
US Snub of WTO Ruling Marks a ‘Step Back’ in Era of Free Trade - https://www.bloomberg.com/news/newsletters/2022-12-12/supply-chain-latest-us-snub-of-wto-called-a-step-back-for-trade
US pauses financial contributions to WTO, trade sources say - https://www.reuters.com/world/us-suspends-financial-contributions-wto-trade-sources-say-2025-03-27/
One can say it's not fair all they want.
But that's what super powers can do:
They set the rules and if any one wants to get into a club, they have to make a deal with the bouncer to let them in.
This will pave the way for US to have complete freedom to renegotiate any trade deals they make with any country at any time they want.
The future of global trade will be highly volatile compared to the globalization era we had experienced in the past decades.
#2 - The 3.83 Trillion Dollar weapon
As of 11 March 2024, the US Department of Defense fiscal year 2025 budget was $849.8 Billion.
Just under 1 Trillion Dollars.
Comparing that to the amount of goods and services US import in 2023, 3.83 Trillion Dollars is a lot of Dollars.
Over 4x of what US spends on defense.
Trump essentially turns the US consumers into it's biggest weapon:
If you want to sell to the world's largest consumers, you have to do what we tell you to do.
And if we change our mind to do business with you, we can cut you off at any time we want.
It's a powerful weapon, as long as it doesn't backfire.
Anyone who have observed Trump closely, this is how he conducted his business dealings for years.
If you have utility to me, you are useful.
If I'm done with you, not even a good bye or see you later.
Very transactional.
That's the type of interaction he understands.
Nothing surprising here.
#3 - Lower bond rate
The US was dangerously close to falling into a "debt death spiral”.
Ray Dalio have spoken on this topic multiple times:
The biggest crisis brewing for the US is the amount of debt that needs to be rolled over or refinanced this year.
As crazy as Trump may appear to many looking from the outside view, he and his Secretary of Treasury - Scott Bessent have mentioned over and over how they want to bring down the interest rate.
President Donald Trump says Fed Chair Powell should cut interest rates and ‘stop playing politics’
See it here: https://www.cnbc.com/2025/04/04/trump-tariffs-jerome-powell.html
Trump tried to get the Fed to do it, except as an independent agency, Jerome Powell doesn't need to listen to him. Despite the numerous calls on Powell to lower the rate, at one point, he said, "I will have to do it"
Creating confusions in the market will lead to volatility and uncertainty, which lead money flowing to where it seems stable or safe - US Treasuries, aka. US government debts.
This is the type of 2D Chess game I think Trump is playing.
Creating enough uncertainties in the market to get what he wants - lower Bond Rate.
#4 - Unleash 35 Trillion of home equity
Contrary to what many people are claiming Trump is trying to tank the economy, there's some “smarts” with his move.
As the long term Bond rate comes down, that will enable mortgage rates to come down as well.
Americans are currently sitting on 35 Trillion of home equity, the highest on record in history - See it here: https://fred.stlouisfed.org/series/OEHRENWBSHNO
The entire housing market is frozen because of the higher interest rate.
Once the rate comes down, it will unleash a portion of the home equity history has never seen before.
Through refinancing, those "trapped equity" will turn into cash, and Americans will do what Americans do best:
Spend, spend, spend!
That’s a big IF he pulls this off without crashing the global economy in the mean time.
It’s certainly possible, as long as the tariffs don’t stay in place for too long.
Even though right now it seems like the sky is falling, I expect a boom in the coming years for the US once the "trapped equity" are released into the economy.
#5 - Losing the tariff game with China
This is where I think Trump may have miscalculated in his game play.
I think he thought he could win this game.
I believe he will win with most of the countries, except one - China.
You see, China plays a different game.
They follow a different rule book.
They have the "luxury" of an autocratic government, if one can call this a luxury.
That means, they don't have to worry about losing in the coming elections.
That means, they have a much longer timeline they can play with.
That means, they can suffer for the short term, even taking a significant sacrifice, all to deliver on a long term objective.
Whether you want to call it "The Long Game" written by Rush Doshi or "The Hundred-Year Marathon" by Michael Pillsbury, China has long focused on long term planning and position itself strategically beyond most Western democracies.
I believe China will be willing to risk 100%+ tariff in the short term and still not bow down to Trump.
Once tariff crosses over a certain percentage, it become irrelevant.
Because the products are simply too expensive to ever be imported.
That means, trade effectively stops to a complete halt.
It doesn’t matter if it’s 100% or let it be 1,000%, once it hits a large enough number, trade simply stops altogether.
China is prepared to go there.
This is their chance to show strength, even though US is still many times bigger than they are.
They will rally the their citizens, convince them to do whatever it takes, to win this ideological war.
It's do or die for them.
Even if it severely hurt their economy this year or next.
The crazy part?
They may actually "win".
Their exports have been declining over the years to US.
That means, even though they will be impacted, it likely won't destroy them the way Trump may have thought they would.
I'm not sure what the fall out would be for Trump and the US if China "wins" this war.
I put the quotation marks for win because economically in the short term, China will suffer.
They will lose more than the US.
But for China, pride and ego is more important in this war.
They want to make history.
This is their chance.
#6 - Canada caught in the middle?
The biggest thing I'm watching closely as an investor, is that Canada doesn't get caught in the middle of the two world super power.
It's like a divorcing couple fighting for custody.
The one who loses the most is the poor kid.
There’s always 2 sides to a coin.
While that’s certainly a plausible situation to be stuck in, we may also see another situation emerge:
Canada becoming the prom queen
It is also possible that both countries are wanting Canada to take their side, willing to sweeten the pot to gain a strategic advantage.
I’ve seen this first hand in Nepal while I was involved with a NGO.
Nepal was stuck between India and China.
Both countries from time to time have woo’d Nepal to their side.
However, during times of conflicts between China and India, both countries also use Nepal as a punching bag.
Expect more volatility for Canada in the coming years.
That doesn’t mean it’s a negative thing.
Volatility creates opportunities, as long as one is able to react fast and change course when needed to stay ahead.
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What an interesting time to be alive.
As always, happy investing!
If you like my work, I invite you to share it with others.
Eric Chang
Calgary, Alberta
April 8, 2025
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