Trump’s tariffs would worsen the China shock experienced by the rest of us

He then asks, “Do you want to switch to door No. 2?" Is it to our advantage to switch from door No. 1 to No. 2? In academia, this is called the Monty Hall problem. While thousands of Ph.D. scholars had initially argued that there is no advantage in switching doors, probability theory and computer simulations demonstrate the opposite.

Also read: Mint Primer When the chips are down: A US-China trade war?

Since there are three doors, initially, our odds of selecting the car are 33.3% or one-third, while the odds of it being behind one of the other two doors are 66.7% or two-thirds. Once the game-show host reveals a goat behind one unselected door, we find ourselves dealing with a question of conditional probability.

So the likelihood of the car being behind door No. 2, given that No. 3 only has a goat, goes up to 66.7% or two-thirds. Sticking to the original choice would have ignored new information and led us to lose.

This highlights the importance of adapting decisions to fresh evidence—a critical skill in systems thinking. Such failures to adapt resonate strongly with the mistakes that policymakers have historically made in ignoring systemic complexity.

A striking historical example is the Smoot-Hawley Tariff Act of 1930, implemented during the early part of the Great Depression in America to shield US farmers from foreign competition. It imposed steep import tariffs on European imports, but provoked retaliatory duties from 25 nations, leading to a 66% collapse in global trade.

This economic isolation exacerbated the Great Depression, caused widespread unemployment and destabilized Europe’s economy, indirectly paving the way for World War II. The lesson is clear: simplistic solutions fail to account for the intricate inter-dependencies of complex systems.

A more recent parallel lies in US President-elect Donald Trump’s 2018 tariffs, which aimed to boost domestic manufacturing and protect US jobs. The 20% tariff he imposed during his last stint as US president on washing machines, for example, increased their prices by 12%, while the cost of complementary goods, such as dryers, also rose.

Although the US collected $82 million annually in tariff revenues, American consumers bore an additional $1.5 billion in higher costs. Further, the tariffs ultimately resulted in an estimated loss of 142,000 jobs on account of broader economic disruptions caused.

Though initially intended as temporary measures, tariffs often persist. For example, President Joe Biden extended many of Trump’s tariffs, reflecting how such policies can get entrenched even when their long-term consequences are harmful.

These decisions underscore the risks of ignoring systemic complexity—just as we saw with the Monty Hall problem, where a failure to re-assess the situation in the light of new data leads to suboptimal outcomes.

Also read: Trump's tariffs will worry India, but wait, there’s more

Now, Trump has threatened new tariffs targeting imports from Canada, Mexico and China, and also warned that Brics nations could face even steeper import barriers if they try to replace the US dollar as a trade currency. China accounts for a substantial chunk of the world’s gross output and contributes significantly to global value addition.

China’s political system enables its manufacturing prowess, but at a cost. Local governments in China have accumulated $11 trillion in off-the-books debt to fund infrastructure and industrial production, creating a debt-driven, state-backed manufacturing sector.

This allows Chinese manufacturers to flood global markets with underpriced goods, undermining domestic industries elsewhere and causing global supply to exceed demand across several product categories. Unlike fair competition among private firms, manufacturers competing with Chinese producers are effectively competing against the Chinese state on a highly uneven playing field.

With China’s manufacturing surplus now accounting for approximately 2% of global GDP, and with the US being China’s biggest trade partner, Trump’s tariffs could result in cheap Chinese goods flooding other markets, further undermining industries in other countries.

The systemic challenge of tariffs mirrors the Monty Hall problem. Trump’s unilateral tariffs, like refusing to switch doors in the game show, demonstrate a failure to adapt to evidence and systemic realities. These import barriers risk creating new burdens for US consumers while destabilizing global markets.

A more effective strategy would involve fostering a global coalition to address China’s state-backed manufacturing practices. Reframing the issue as ‘China versus the rest’ instead of ‘America versus the rest’ could encourage collaboration with allies, ensuring fair competition while promoting global economic stability.

Such an approach would not only benefit US consumers but also incentivize China to adopt more sustainable practices, strengthening its long-term economic health.

Also read: Data dive: Should RBI let the rupee fall?

As with the Monty Hall problem, success lies in reassessing decisions based on new information. By pivoting from unilateral actions to collaborative strategies, Trump could open the door to a more equitable and robust global economy—one that is truly aligned with his election-campaign goal of making America great again.

The author is a strategy and public policy professional. His X handle is @prasannakarthik.