DONALD TRUMP IS screwing up the ultimatum game.
The classic psychology experiment works like this: One player is given some amount of money, say $20, and told to divide it between herself and another player however she pleases. The second player can accept or reject the offer. If he agrees, both players keep the money. If he declines, both players walk away emptyhanded. In theory, the second player should accept any offer. After all, something is better than nothing.
But that's not what people do. When offered less than 30 percent of the total, peeved second players consistently turn it down. Tweaking the terms can change the outcome on the margins, but not the underlying fact that even when people are getting something for nothing, they're willing to sabotage their own material gain to make sure the person who offered them a bad deal loses too. This is, alas, the secret to understanding international trade policy.
In July, President Trump laid out his plan to renegotiate the North American Free Trade Agreement (NAFTA), a set of rules governing commerce between the U.S., Canada, and Mexico that he has called "the worst trade deal maybe ever." The tariff- and bureaucracy-reducing arrangement, which was negotiated by President George H.W. Bush and signed into law by President Bill Clinton, has been a political ping pong ball ever since. White House hopefuls like to talk smack about it during their now-mandatory factory-floor campaign speeches, which generally demean the quality of goods manufactured abroad, lament the loss of certain blue-collar jobs, and bemoan the existence of trade deficits--where imports outweigh exports--as the root of these evils.
More than 20 years after its implementation, NAFTA has tripled the United States' cross-border trade with Canada and Mexico, an increase that significantly outpaces the growth in U.S. trade with the rest of the world. But the U.S. did have a $63 billion trade deficit with Mexico last year, compared with a $1.7 billion surplus in 1993. Is that a sign that America got a bad deal? Donald Trump thinks so.
The same sentiment was on display in his recent partial reversal of President Barack Obama's opening up of relations with Cuba. "Effective immediately, I am canceling the last administration's completely one-sided deal with Cuba," the president said in June. (For more on that, flip to "Whiplash and Backlash in the Republic of Cuba" on page 28.)
Donald Trump isn't...