The Painful Logic of Collective Action in the Global Political Economy

Turns out cooperation is hard.

Photo by Antonio Janeski on Unsplash

In the wake of Trump’s Wednesday backtrack on reciprocal tariffs, the mainstream media is providing some tick-tocks on what happened.¹ The Wall Street Journal’s Annie Linskey, Josh Dawsey, and Meredith McGraw reports, “It took a week for the plunge in the stock and bond markets—along with a sustained campaign by executives, lawmakers, lobbyists and foreign leaders—to prompt Trump to roll back for 90 days a major element of his sweeping tariff plan…. He told advisers that he was willing to take ‘pain,’ a person who spoke to him on Monday said. He privately acknowledged that his trade policy could trigger a recession but said he wanted to be sure it didn’t cause a depression, according to people familiar with the conversations.”

This jibes with what the London Times’ David Charter reports:

The announcement of the pause was a lot more haphazard than [Treasury Secretary] Bessent suggested, The Times understands. Bessent, a billionaire hedge fund manager, has emerged as the more reasonable face of the Trump administration, pushing the case within the White House that good tariff deals are possible and appealing for calm in the markets.

His argument was strengthened by the administration’s inability to cope with the stampede of 70 countries “dying to make a deal”, in Trump’s words. They simply could not cope with the whirlwind that Trump had unleashed….

Bessent foresaw the carnage continuing unless Trump went back on his vow last Friday that “my policies will never change”….

One of the clinching factors in Trump’s decision was the the dumping of US government debt, or treasuries, by Wall Street traders, which raised 30-year borrowing costs to 5 per cent — a two-year high. Yields have surged by the largest amount since 1982 this week, propelling the US government’s 30-year borrowing costs above those of formerly stricken Greece.

That would feed through into higher mortgage rates if unchecked, robbing Trump of one of his core election pledges and perhaps endangering the fundamentals of the economy to the point of a market downgrade, recession or worse.

And the New York Times writeup says something similar:

Mr. Bessent played a significant role in steering the president toward the pause. But the real credit, Mr. Trump’s advisers admit privately, should go to the bond markets. Mr. Trump’s decision was driven by fear that his tariffs gamble could quickly turn into a financial crisis. And unlike the two previous crashes of the past 20 years — the global financial crisis of 2008 and the pandemic of 2020 — this crisis would have been directly attributable to only one man.

As Politico’s Rachel Bade noted as well, Donald Trump ran headlong into something that he could not bully into submission: the bond market.

I suspect that many readers of Drezner’s World might be wondering why it was left to the bond market to truss up Trump. Trump has been transgressing against a variety of institutions — law firms, universities, nonprofits, and now the rest of the world — and Trump’s critics keep wondering how he gets away with it.

The hard-working staff here at Drezner’s World previously explained the myriad reasons why universities have been so sluggish in their response.² But I think the problem is broader than that.

What Trump’s coercive actions have revealed is that Mancur Olson was right in The Logic of Collective Action: even in the face of an existential threat, it is extremely difficult for like-minded actors to pool their resources together and cooperate. This is for the reason that Olson articulated — the free-rider problem — but for other reasons as well. For one thing, the transaction costs of a coordinated response are high. They are even higher during a crisis. For another, if one or two actors fail to cooperate it can create a decision cascade that makes it impossible for any coalition of the resistance to hold the line.

These dynamics have been at play with law firms and universities, but they are even more powerful in international relations. Politico’s Nahal Toosi made this trenchant point earlier this week:

As President Donald Trump announced historically high tariffs across the world this week, I expected a number of affected governments to rapidly and collectively fight back.

Instead, with the exception of China and a few scattered reprisals from allies, we’re seeing mainly cautious reactions. Foreign officials are talking about “calibrated” responses and keeping a “cool head.” Some are clearly hoping diplomacy will persuade Trump to back off some or many of his tariffs.

In conversations with diplomats, economists and former U.S. officials, I asked why. Weren’t they concerned this muddled, cautious global reaction would be too weak to persuade Trump to change course, or even embolden him to get tougher?

But these experts argued that there are compelling reasons many governments are not acting fast or in unison — not the least of which is that the world’s countries are not good at collective action, and many believe they have a better shot at accomplishing more, for themselves at least, if they avoid escalating the fight with Trump….

Governments simply don’t easily come together to unite in action, even when they are faced with a common threat.

Each government has its own national interest and doesn’t trust others won’t stab them in the back, said one foreign diplomat, who likened it to the classic “prisoner’s dilemma.” Remember how little global solidarity there was during the early days of the Covid-19 pandemic as countries raced to secure medical supplies?

The European Union is a long-established exception on the trade front, obviously, and it is preparing at least two sets of retaliatory tariffs, though it’s spacing them out, reportedly in hopes of negotiations. But other groupings have yet to emerge to take on Trump’s tariffs….

“I can’t be the last one to reach a deal with Trump, because if I’m the last one, then I’m the one who’s going to get screwed,” the foreign diplomat said. Like others, the diplomat was granted anonymity to be candid about a sensitive issue. “If I’m the first one to reach the deal, then it might be the most advantageous possible thing, and compared to other countries, I’ll be better off. And so my trade will suffer relatively less.”

Toosi’s experts are correct. Cooperation is hard, particularly during a crisis and particularly if there is not much trust between possible collaborators.

This might be the one way in which Trump’s trade war could work out for him. Instead of the United States negotiating with every country all at once in a forum like the World Trade Organization,³ the Trump administration will be allegedly attempting to negotiate with more than 70 countries on a one-on-one basis.⁴ And the U.S. has more leverage in bilateral trade talks than multilateral trade talks.

The absence of collective action might give Trump a tactical advantage in some of these trade negotiations. But make no mistake, this whole fiasco has been a strategic mess. There’s a reason the stock market kept tanking yesterday: even if Trump’s team successfully negotiates all these new bilateral deals — and that is still a big if — none of them will erase the massive carnage of what Trump has already wreaked on global trade:

The New York Times explained: “The looming disruption to the flow of billions of dollars’ worth of goods between China and the United States, as well as the trade that often passes through other countries, will have a devastating impact on both economies and their trading partners.”

In other words, the real question to ask is if and/or when the bond market starts to freak out again.

Developing….

1. It is always important to read these things carefully, because there is usually some sources who want to make themselves look good *COUGH* Scott Bessent *COUGH* but if the same themes pop up in a number of them then it suggests some degree of veracity.

2. Except for the Fletcher School and Tufts University. Really proud of my employers right now for defending their students.

3. Remember when the WTO was an important organization with the gold standard for dispute settlement resolution? Look at its website now — you wouldn’t even know that there was a global trade war. That’s incredibly depressing, and I would just like the trade officials who served under Obama’s final year, then Trump I, then Biden, and now Trump II to know how badly they screwed the pooch in destroying this particular international organization.

4. Does Trump’s team possess the bandwidth, discipline, and competence to handle so many bilats at once? Let’s just say I have my doubts and am quite certain that at least one of these negotiations gets blown up by Trump himself.