Ten years ago on this blog, I wrote about truels — three-person duels — and argued that the 2016 GOP primary was one. The basic insight: when three players are in a fight and only one can win, it matters enormously whom you shoot at, and the answer is usually counterintuitive. In particular, the two weaker players should both aim at the strongest, even if they despise each other. I stopped writing this blog shortly thereafter, for reasons that are mostly between me and my therapist.1
The trade war has become a truel. And the player who grasped the logic earliest didn’t fire a single shot.
The Game Board
On February 20, the Supreme Court ruled 6-3 that the President’s use of the International Emergency Economic Powers Act to impose tariffs exceeded his statutory authority. The administration replaced the IEEPA tariffs with a 10% global levy under Section 122 of the Trade Act of 1974 — an instrument that is capped at 15%, temporary by statute, and considerably more vulnerable to legal challenge than IEEPA ever was.2 The 150-day clock on Section 122 expires July 24 — four months before the midterm elections, in case anyone needed a reminder of what the relevant incentive structure looks like.
Before the ruling, the trade war was structurally a dictator game: the President set tariffs unilaterally, and everybody else decided how much to retaliate. IEEPA gave the executive essentially unchecked tariff authority. The SCOTUS ruling changed the structure of the game. And in game theory, structure is everything.
There are at least four major players: the United States, China, the European Union, and Japan. Kilgour’s classic analysis of truels tells us that the two weaker players should aim at the strongest.3 Think of it as the geopolitical version of “let’s you and him fight.” In practice, the EU and Japan have both retaliated primarily against US goods and have both explored deepening ties with China — consistent with the truel logic.
But here’s the twist. The SCOTUS ruling didn’t weaken the US’s economic leverage — Americans still buy a lot of stuff. It weakened the US’s institutional leverage: the President’s ability to credibly threaten future tariffs. Any trade deal negotiated under IEEPA’s shadow is now suspect. Countries that made concessions in exchange for IEEPA-rate reductions are discovering that the currency they were paid in might be counterfeit.4
China Won By Doing Nothing
Consider what actually happened to each player’s position after the ruling.
Under the old IEEPA tariffs, China was paying roughly 35% — the original fentanyl rates plus the reciprocal rate. Under Section 122 at 10-15%, China pays a fraction of that. The SCOTUS ruling, combined with Section 122’s flat rate, effectively rewards the countries that refused to negotiate bilateral deals and punishes the countries that did. Japan, South Korea, the EU, and the UK — the good-faith negotiators — are now potentially paying rates comparable to or higher than China, which negotiated nothing. The cooperative strategy was dominated.
China shot at nobody and won the round.
This is not a subtle result. It is the truel logic playing out in slow motion: the player with the most guns — the United States, which controlled tariff rates through IEEPA — got shot at by everyone, and the player who stayed out of the firefight is now in the best position. The cooperators paid the cost of the US’s institutional weakness. This is a version of what game theorists call the hold-up problem: when one party makes concessions based on the other’s promise, and the promise turns out to be unenforceable, the cooperative party bears the cost. IEEPA was not a credible commitment device. Countries that treated it as credible got held up.
Why Japan Kept Paying
Which brings us to yesterday, and something genuinely interesting.
At the Oval Office on March 19, Prime Minister Takaichi and President Trump announced a second tranche of Japanese investment in the United States: $40 billion in small modular nuclear reactors (GE Vernova and Hitachi building BWRX-300 plants in Tennessee and Alabama), plus $33 billion in natural gas power plants in Pennsylvania and Texas. This came on top of Japan’s existing $550 billion investment commitment — a commitment that Japan has honored scrupulously despite the fact that its legal basis, the IEEPA tariff structure it was designed to offset, was invalidated by the Supreme Court last month.
Trump referenced Pearl Harbor. He said Japan was “stepping up to the plate.”
The conventional interpretation of Japan’s position is that Takaichi had no choice — she needed the relationship more than she needed the tariff concessions. That’s true but incomplete. The formal interpretation, which is more interesting, goes like this.
Robert Putnam’s two-level game framework says that international negotiations are always simultaneously domestic political negotiations: a leader’s international bargaining position depends on what their domestic “win set” — the range of agreements that can get ratified at home — allows them to accept. Usually in this framework, a smaller win set gives a leader more leverage internationally (“I’d love to agree, but my legislature won’t let me”). Takaichi has just won the largest Lower House majority for her party since World War II. Her win set is enormous. She can agree to almost anything.
This should, in the standard model, weaken her international bargaining position. She can’t credibly say she’s constrained. And yet she walked out of the Oval Office with Trump pledging to “speak Japan’s praises” to Xi Jinping, with a Gold Dome missile defense commitment, and with deeper intelligence-sharing arrangements — while successfully avoiding any hard commitment to send Japanese naval assets to the Strait of Hormuz, which Trump had been pressing for.
The resolution is that Takaichi isn’t playing a one-dimensional game. The trade deal and the security relationship are two different issue dimensions, and her enormous win set on the trade dimension gave her room to absorb costs there in exchange for gains on security. Honoring $550 billion in investment commitments whose legal tariff basis evaporated wasn’t a concession — it was the price of the security deliverables. The investment pledge was never really about tariffs. It was the entry fee for the conversation Takaichi actually came to have.
Japan cooperated despite being held up, because the thing that held it in place wasn’t the tariff structure. It was the alliance.
The Clock and the Calendar
Section 122 expires July 24 — 126 days from today. Here is what that deadline looks like for the relevant players.
For the administration, expiration is a narrative problem: a visible tariff deadline four months before a midterm election, in which its approval on the economy sits around 36%, looks like losing. For House Republicans in swing districts, a vote to extend Section 122 means owning tariff-driven price increases in an election year. For Democrats, letting the tariffs expire without a fight is a free win; proposing household refunds from the $175 billion in unauthorized IEEPA tariffs already collected is a campaign issue. The six Republicans who voted to overturn the Canada tariff earlier this year are the canaries. If that number grows, the truel logic bites again — the weaker players start shooting at each other rather than at the opposition.
There is also the obvious question: what happens on July 25? The answer is probably another tariff, under another statute, with another clock. Section 301 investigations are already underway. The 150-day limit constrains this tariff. It does not constrain the next one.5
And then there is the April Trump-Xi summit, which is the event that could reshape everything. China is currently the biggest beneficiary of the SCOTUS ruling. A grand bargain that raises China’s rates while lowering allies’ rates would realign the game entirely — and would retroactively validate Japan’s decision to stay at the table. But a deal requires Trump to have leverage, and the Supreme Court took away his cleanest instrument. The toolbox is not empty. It is just messier than it was.
Here is what I know. The truel always rewards the player who understands the structure of the game rather than the player with the most firepower. In 2016, I argued that Trump’s Banzhaf power in the GOP primary had hit 1.0 — every other candidate’s vote share was irrelevant once he cleared 50%. That was a weighted voting game, not a truel. In a truel, power doesn’t accumulate that way. The player with the most guns gets shot at first.
Right now, the United States is holding a 15% tariff, a 126-day clock, a fractured Congress, and a midterm calendar that turns every trade vote into a survival calculation. That’s a lot of guns. China is holding a tariff rate that fell 20 percentage points without negotiating anything. Japan just announced $73 billion in additional US investment and left Washington with security commitments it came for.
The question is whether anyone will notice that the guns are pointed inward.
With that, I leave you with this.6
1 The last post I wrote, in June 2016, calculated the proportion of Trump’s campaign contributions that were unitemized. His Banzhaf power had hit 1.0 by then — every other candidate’s share was mathematically irrelevant. I thought the general election would produce a firehose of commentary I didn’t have the time or stomach for. I was not wrong about the firehose.
2 IEEPA requires a declared national emergency, but in practice the declaration was treated as essentially unreviewable — until the Supreme Court decided otherwise. Section 122 is a weaker instrument in almost every dimension: it caps at 15%, it expires after 150 days, and it has been litigated before.
3 The classic reference is Kilgour (1975). The intuition is straightforward: if the two strongest players are each other’s biggest threats, the weakest player gets ignored long enough to survive. In the international trade context, “weakest” means most dependent on US trade — which is why the EU and Japan are the canaries rather than China, which has more alternative markets.
4 The EU has already signaled it considers the US potentially in breach of last summer’s deal. The fact that the breach was caused by the judiciary rather than the executive is, from Brussels’s perspective, not their problem.
5 This analysis assumes July 24 is a hard constraint. Whether it is — whether the expiration is self-enforcing or requires institutional actors who may or may not act — is a question I will leave to the side. But note: a deadline game in which one player can credibly signal indifference to the deadline is not really a deadline game at all. It is something else.
6 Ennio Morricone, “The Trio,” from The Good, the Bad and the Ugly. The literal three-way standoff. The only winning move, as it turns out, involved watching the other two shoot each other first.