Strategic Rationality Under Asymmetric Power: A Game-Theoretic Reinterpretation of Trump's Foreign and Economic Policy

Executive Framing

Much contemporary commentary on President Donald Trump's foreign policy—particularly regarding NATO, Greenland, Venezuela, tariffs, and alliance coercion—rests on a psychological or personality-driven explanation. This perspective portrays U.S. policy as incoherent, impulsive, and detached from strategic rationality, reducing decision-making to the idiosyncrasies of a single actor.

This analysis advances a strong alternative interpretation: Trump's policies are better understood as a rational strategy within an asymmetric, repeated strategic game, where the United States possesses overwhelming structural power, credible escalation dominance, and superior information about allied reaction functions. From this vantage point, what appears erratic or destructive is often instrumentally rational, though norm-breaking and institutionally corrosive.

The implication for G7 policymakers is profound:

misdiagnosing rational coercion as irrationality leads to systematically flawed responses.

I. The Analytical Error of Personality Reductionism

The prevailing critique—exemplified across major foreign policy publications—rests on three implicit assumptions:

U.S. policy is no longer strategic, but personal
Institutions have ceased to constrain decision-making
Actions such as tariff threats, territorial pressure, and alliance disruption lack coherent payoff logic

These assumptions are analytically weak. They confuse institutional erosion with strategic irrationality, and norm violation with strategic incoherence. In reality, strategy does not require institutions, norms, or consensus—only credible threats, asymmetric leverage, and predictable opponent behavior.

Game theory explicitly accommodates environments where:

One player dominates materially
Norms are endogenous, not fixed
Commitment devices are intentionally weakened
Uncertainty is weaponized

Trump's behavior fits this model closely.

II. Structural Power and the Asymmetric Game

1. The United States as the Dominant Player

In game-theoretic terms, the United States occupies the role of a player with escalation dominance across multiple dimensions:

Military (global force projection)
Financial (reserve currency, sanctions reach)
Trade (market access leverage)
Security provision (NATO, extended deterrence)

Crucially, the U.S. is less dependent on the system than its allies are. This creates a fundamental asymmetry in outside options.

In bargaining theory, the player with the better outside option can:

Delay cooperation
Threaten exit
Impose non-cooperative equilibria

Trump's strategy explicitly exploits this asymmetry.

Empirical Validation: The First Year (2025-2026)

The first year of Trump's second term provides striking empirical confirmation. The National Security Strategy released in December 2025 formally articulated what observers called the "Trump Corollary to the Monroe Doctrine"—an explicit hemispheric consolidation strategy. Military action against Venezuela's Maduro regime in January 2026, involving over 150 aircraft and special forces in a nighttime operation, demonstrated willingness to deploy overwhelming force against weaker states where power asymmetry is maximal.

Simultaneously, Trump withdrew the United States from 66 international organizations on January 7, 2026, signaling systematic preference for bilateral leverage over multilateral constraint. This is not strategic incoherence—it is deliberate commitment weakening to enhance bargaining power.

III. Superior Information and Reaction-Function Exploitation

2. Trump's Key Strategic Advantage: Predictable Allies

Contrary to claims that Trump acts without information, his approach relies on highly accurate beliefs about allied behavior:

Europe will not meaningfully decouple from U.S. security guarantees
NATO members will escalate spending only under coercion
Trade partners will absorb tariffs rather than risk U.S. market exclusion
Domestic political constraints in allied states prevent sustained retaliation

This is reaction-function dominance.

In repeated games, players who accurately anticipate opponent responses can rationally adopt strategies that appear reckless but consistently yield concessions.

Validation: The NATO Spending Breakthrough

By June 2025, following sustained pressure from Trump demanding 5% GDP defense spending (up from the previous 2% target), NATO allies reached a historic agreement at The Hague Summit. Twenty-three of thirty-two members now meet or exceed the 2% threshold, with Estonia and Lithuania pledging to meet the 5% target. The agreement commits allies to 3.5% for core defense requirements plus 1.5% for infrastructure and resilience by 2035.

European defense spending is projected to increase 60% by 2030—from approximately $350 billion in 2025 to $550 billion—driven primarily by fear of U.S. disengagement. Poland's Minister of Foreign Affairs acknowledged that achieving this outcome "would be impossible without the support and leadership of Donald Trump." Even critics concede the breakthrough was achieved through coercion, not consensus.

Congressional constraints reveal allied prediction accuracy: The 2026 National Defense Authorization Act requires maintaining at least 76,000 troops in Europe and prevents the Pentagon from relinquishing NATO's Supreme Allied Commander role without extensive consultations—provisions that passed with bipartisan support (77-20 in Senate, 312-112 in House). These constraints exist precisely because Congress accurately predicted Trump's willingness to withdraw.

Trump's threats work not because they are subtle—but because they are correctly calibrated to opponent constraints.

IV. The Logic of Norm Destruction as Commitment Strategy

3. Why Institutional Chaos Can Be Rational

Traditional alliance management relies on commitment credibility through institutions. Trump reverses this logic.

By:

Undermining NATO predictability
Disregarding diplomatic sequencing
Violating rhetorical taboos
Openly encouraging right-wing movements in Europe
Shutting down USAID and slashing foreign aid

He removes his own commitment constraints, making threats more credible.

In game theory, this resembles deliberate commitment weakening: A player who cannot be trusted to follow norms is harder to exploit and more costly to ignore.

This is not irrationality—it is a coercive bargaining tactic.

The Venezuela Operation: Credible Commitment to Unilateralism

The January 3, 2026 military operation to capture Maduro represents the most consequential use of U.S. military power in the Western Hemisphere in decades. Trump's statement that the U.S. would "run" Venezuela and refusal to rule out boots on the ground signals a fundamental departure from multilateral coalition-building.

Critics describe this as abandoning the discipline of grand strategy itself. But former Assistant Secretary of State A. Wess Mitchell argues it represents consolidation strategy—accepting near-term tradeoffs while renovating structural factors to increase disposable power over time. The operation demonstrated that Trump's maximalist threats are not merely negotiating tactics but credible commitments to action.

V. Greenland, Venezuela, and the Strategy of Extreme Anchoring

4. Greenland as a Strategic Anchor, Not an Objective

The Greenland episode is often treated as evidence of irrational obsession. A game-theoretic reading suggests otherwise.

Greenland functions as:

A high-salience, low-probability threat
A signal of willingness to violate alliance taboos
An anchor that redefines the bargaining range

Whether Greenland is acquired is secondary. The primary payoff is:

Increased European compliance
Heightened fear of U.S. disengagement
Forced acceleration of European defense spending

Escalation Through January 2026

On January 17, 2026, Trump announced 10% tariffs on eight European NATO allies (including Denmark, Norway) effective February 1, rising to 25% by June 1, explicitly linked to Greenland negotiations. The demand: Denmark must agree to sell Greenland, or face economic punishment. Trump stated the U.S. would "do something on Greenland, whether they like it or not," framing Russian or Chinese control as the alternative.

Vice President JD Vance visited Pituffik Base in Greenland in March 2025, demonstrating military presence. These are not the actions of someone making empty threats—they are calibrated escalations designed to shift the Overton window of acceptable demands.

Extreme demands reset expectations. Even if rejected, they shift the equilibrium.

VI. Tariffs as Dynamic Punishment Mechanisms

5. Trade Policy as Repeated-Game Enforcement

Trump's tariffs should not be read as protectionism alone, but as dynamic punishment strategies in repeated interactions.

They serve to:

Penalize deviation
Signal future willingness to escalate
Test domestic resilience of counterpart governments

Unlike WTO-embedded trade policy, this approach:

Avoids legal delay
Maximizes uncertainty
Exploits domestic political fragility abroad

The 2025 Tariff Campaign: Systematic Coercion

From January to April 2025, the overall average effective U.S. tariff rate rose from 2.5% to 27%—the highest level in over a century. By November 2025, after negotiations and modifications, the rate settled at 16.8%. The campaign proceeded systematically:

February-April 2025: Trump imposed 25% tariffs on Canada and Mexico, 20% on China (later reduced to 10% in May negotiations, extended through November 2026), and announced global reciprocal tariffs with baseline 10% on all imports and country-specific rates ranging from 10% to 41% on 69 trading partners.

May-August 2025: After Court of International Trade rulings temporarily blocked certain tariffs, Trump negotiated framework agreements with major partners: UK (10% baseline with exemptions), EU (15% on most imports, though 50% on steel and aluminum), Japan (15% on autos), South Korea (15%). Each agreement included commitments to purchase American defense systems.

Key Strategic Element: Trump systematically paused, modified, and reinstated tariffs to maximize negotiating leverage. When courts challenged IEEPA authority, he immediately appealed. When partners resisted, he escalated. The S&P 500's 9.52% single-day surge after a temporary pause in April demonstrated market belief that threats were credible—when relief came, it was genuine.

Sectoral Targeting: 50% tariffs on steel, aluminum, and copper; 25% on imported cars and auto parts (with USMCA exemptions); investigations launched on commercial aircraft, semiconductors (25% imposed January 14, 2026 on certain AI chips), pharmaceuticals, lumber, furniture. Each sector targeted industries where allies had concentrated exposure and limited alternatives to the U.S. market.

Revenue Generation: Tariffs raised approximately $300 billion in 2025 (6.1% of federal tax revenue) compared to $100 billion in 2024 (2.1%). This represents the largest U.S. tax increase as a percent of GDP since 1993, imposing an estimated $1,500 burden per household in 2026.

Reaction-Function Exploitation: China agreed to slash retaliatory tariffs from 125% to 10% in May 2025, extended through November 2026—a unilateral concession demonstrating Beijing's greater vulnerability. European leaders, having "prepared for months to respond to tariffs," instead signaled readiness to buy more American weapons. Australia declined China's offer to "join hands" after U.S. tariffs, choosing to absorb costs rather than pivot.

Again, norm-breaking enhances leverage.

VII. Why Europe Miscalculates Trump

6. The European Strategic Error

European responses often assume:

Trump can be "waited out"
Institutional memory will restore equilibrium
U.S. behavior is electorally constrained

Game theory suggests the opposite:

Trump benefits from short-term disruption
Europe bears the long-term adjustment costs
Delay strengthens U.S. leverage, not Europe's

In asymmetric games, the weaker player's preference for stability becomes exploitable.

The Squeeze Between U.S. and China

Europe in 2025 found itself trapped between American tariff pressure and Chinese economic coercion. When Dutch authorities seized control of chipmaker Nexperia, China weaponized rare earth exports essential for Europe's tech sector. Only after Trump met Xi Jinping in South Korea in October 2025 did Beijing ease controls—sidelining EU diplomacy entirely. The Netherlands ultimately returned Nexperia to Chinese owners, revealing the limits of European policy autonomy.

European Commission President Ursula von der Leyen warned of a "second China shock" from industrial overproduction flooding European markets while simultaneously negotiating tariff relief from Washington. Brussels now seeks exemptions from steel and aluminum tariffs while facing U.S. demands to cut European industrial tariffs and soften digital regulations. The EU insists digital rules are "off limits," but pressure is mounting.

As von der Leyen acknowledged, "We are paying the price for the fact we ignored the wake-up call we got during the first Trump administration—and went back to sleep."

VIII. The Information Asymmetry in Practice

7. Trump's Accurate Prediction Model

Trump's strategy demonstrates sophisticated understanding of:

Allied Dependency Structures: European NATO members cannot replicate U.S. security guarantees. Defense capabilities have "atrophied substantially since the end of the Cold War" with "significant disparity between the demands on NATO militaries today and their capacity to meet them." Even the largest European militaries struggle to field full-spectrum capabilities similar to U.S. forces.

Domestic Political Constraints: European leaders face sluggish growth, budget deficits, and debt rules making new spending challenging. Yet they will choose guns over butter when sufficiently threatened. Polish President Andrzej Duda's admission that the 5% commitment would be "impossible without Trump's leadership" reveals this dynamic.

Market Dependencies: Trading partners will absorb tariffs rather than risk U.S. market exclusion. China extended its tariff reduction truce rather than escalate further. Australia refused Chinese overtures. The UK, despite Brexit sovereignty rhetoric, accepted a 10% baseline tariff framework. These are not coincidences—they are predicted responses to asymmetric dependencies.

Congressional Constraints: Trump correctly anticipated bipartisan opposition to wholesale NATO withdrawal, but also understood Congress would not meaningfully constrain bilateral coercion tactics. The NDAA's 76,000 troop floor in Europe (versus current 100,000) and 60-day delay provisions are constraints, but hardly prohibitive for an administration willing to operate at the margin.

IX. The Consolidation Strategy Framework

8. Grand Strategy Through Hemispheric Focus

Critics viewing Trump's Venezuela operation, tariffs, and alliance pressure as disconnected tactics miss the underlying coherence. The December 2025 National Security Strategy explicitly prioritizes:

Hemispheric consolidation under the "Trump Corollary to the Monroe Doctrine"
Economic security as core national security interest
Allied burden-sharing to free U.S. resources for Indo-Pacific focus
Reduction of multilateral constraints in favor of bilateral leverage

This represents consolidation strategy: accepting near-term costs (damaged alliances, trade disruption, institutional erosion) while renovating structural factors (allied self-defense capabilities, hemispheric control, reduced commitments) to increase long-term disposable power.

Venezuela provides oil reserves and eliminates migration pressure. Greenland offers Arctic military positioning. NATO at 5% defense spending creates European capability to deter Russia independently. Tariff revenue funds domestic priorities while reducing trade deficits. Each element serves the consolidation objective.

Former Assistant Secretary of State A. Wess Mitchell argues this is "firmly grounded in the discipline of grand strategy," not its abandonment. The goal is to "transcend or mitigate tradeoffs in the future" by accepting them now.

X. The Military Dimension: Credible Use of Force

9. Differentiated Application of Hard Power

In his first term, Trump sought to avoid foreign military conflicts. In his second term, he has frequently employed force—but systematically against weaker states where power asymmetry is maximal:

Regional Targets (2025-2026):

Venezuela (January 2026): Maduro capture operation
Iran: Bombing of nuclear facilities, regime change rhetoric (January 17, 2026 call for "new leadership")
Yemen, Iraq, Syria: Sustained bombing campaigns
Nigeria, Somalia: Military strikes

Avoided Escalation with Peers: Despite aggressive rhetoric toward China, Trump has prioritized direct dialogue with Xi Jinping, with multiple phone calls, in-person meetings, and plans for four meetings in 2026. Tariff negotiations produced truces rather than military confrontation. This is textbook great-power diplomacy—coercion against weak states, negotiation with strong ones.

Historian Hal Brands observed Trump is "very good at beating up on weaker states where the power asymmetry with the United States is most severe." This is not indiscriminate aggression—it is calibrated force application targeting states with minimal retaliation capacity.

XI. Implications for G7 Strategy

10. What G7 Leaders Must Internalize

The evidence from Trump's first year back in office confirms:

Trump's strategy is not incoherent—it is coercive: The NATO spending breakthrough, tariff negotiations, Venezuela operation, and Greenland pressure form a coherent pattern of asymmetric bargaining.
Appeasement through flattery works tactically but worsens structural dependence: European leaders' initial attempts to "wait out" Trump or appeal to institutional norms failed systematically. Those who negotiated from positions acknowledging U.S. leverage (Poland, Estonia, UK) secured better outcomes.
Norm appeals fail against actors who benefit from norm erosion: Trump's withdrawal from 66 international organizations signals that multilateral institutions constrain rather than empower his strategy.
The U.S. does not need allies symmetrically—others do: Von der Leyen's admission that Europe "went back to sleep" after Trump's first term reveals this asymmetry. U.S. can credibly threaten exit; Europe cannot.

Effective Response Requires:

Increasing Credible Outside Options

Accelerate European defense integration and industrial base development
Diversify trade partnerships, particularly with Indo-Pacific democracies
Develop autonomous capabilities in critical technologies
Build financial infrastructure reducing dollar dependency

Reducing Reaction-Function Predictability

Demonstrate willingness to accept short-term economic costs
Create genuine uncertainty about European responses to U.S. coercion
Develop retaliatory capabilities that credibly threaten U.S. interests
Form coalitions with other middle powers facing similar pressure

Accepting Short-Term Costs to Alter Long-Term Equilibria

Recognize that delaying adjustment strengthens U.S. leverage
Invest heavily in defense despite fiscal constraints
Accept trade disruption costs while building alternative markets
Resist the temptation to assume "normality" will return

Strategic Adaptation

Distinguish between Trump's personal characteristics and underlying U.S. structural advantages
Prepare for sustained rather than temporary shift in U.S. approach
Recognize that future U.S. leaders may adopt similar tactics once demonstrated effective
Focus on changing structural dependencies rather than changing U.S. behavior

XII. The Broader Theoretical Implications

11. Revisiting Liberal International Order Assumptions

Trump's second term systematically challenges foundational assumptions of post-1945 international order:

Assumption 1: Multilateral institutions stabilize cooperation
Trump's Demonstration: Institutions constrain the powerful more than enable cooperation; dominant players benefit from their erosion

Assumption 2: Norms provide commitment devices
Trump's Demonstration: Norm-breaking itself serves as commitment device by eliminating predictable constraints

Assumption 3: Allies share symmetrical interests in system maintenance
Trump's Demonstration: Asymmetric dependencies create exploitable variation in preferences for stability

Assumption 4: Economic interdependence creates mutual vulnerability
Trump's Demonstration: Interdependence creates asymmetric vulnerability favoring less-dependent parties

Assumption 5: Democratic constraints limit executive unilateralism
Trump's Demonstration: Congressional constraints are marginal when executive operates within zones of presidential authority

These are not merely Trump's personal deviations—they are systematic exploitations of power asymmetries that other leaders may emulate once demonstrated effective.

XIII. Forecasting Future Dynamics

12. Trajectory for 2026

Based on established patterns, expect:

Continued Hemispheric Focus: With Venezuela now under U.S. influence, potential targets include Nicaragua, Cuba, or Bolivia. The State Department's "This is our hemisphere" messaging signals ongoing regional assertion.

NATO Spending Escalation: The 5% commitment by 2035 provides framework for annual compliance verification. Expect Trump to demand demonstrable progress and threaten consequences for laggards. Countries like Italy and Spain spending below 2% face particular pressure.

Tariff Weapon Maintenance: While some rates have stabilized through framework agreements, Trump will maintain threat credibility through sectoral escalations (pharmaceuticals potentially toward 200%, semiconductors, critical minerals) and periodic renegotiations. The Supreme Court ruling on IEEPA authority expected early 2026 will determine legal constraints, but Trump has demonstrated willingness to use alternative authorities.

China Great-Power Management: Despite tariff tensions, expect continued direct dialogue with Xi Jinping as Trump seeks to compartmentalize competition while avoiding military escalation. The model is coercion on economics, negotiation on strategic stability.

Middle East Opportunism: With Iranian nuclear facilities already bombed and regime change rhetoric intensifying, expect continued military pressure short of ground invasion. Israel receives continued support but Trump seeks to reduce U.S. financial commitments over 10-year horizon.

Institutional Erosion: The 66-organization withdrawal is not the endpoint. Expect continued skepticism of UN agencies, potential withdrawal from additional treaties as Trump systematically reduces multilateral constraints.

XIV. The Limits of the Strategy

13. Where Coercion May Fail

Despite demonstrated effectiveness, Trump's approach faces constraints:

Economic Costs: Tariffs averaging 16.8% impose $1,500 annual burden per U.S. household. If economic growth stagnates and inflation persists, domestic political support may erode before 2026 midterms.

Legal Challenges: Courts have repeatedly questioned IEEPA authority for tariffs. If Supreme Court invalidates this foundation, Trump must rely on more constrained alternatives (Section 232, Section 301), reducing flexibility.

Allied Diversification: If Europe successfully develops autonomous defense capabilities and alternative trade partnerships, U.S. leverage diminishes over time. The 60% European defense spending increase by 2030 could paradoxically reduce long-term U.S. influence.

Chinese Resilience: While China made tariff concessions, its rare earth weaponization, industrial overcapacity, and willingness to absorb economic costs demonstrate limits to U.S. coercion. Beijing may be playing longer game than Washington.

Escalation Risks: The Venezuela operation was relatively clean, but more complex interventions (Iran, North Korea) could produce quagmires. Military overextension remains possible despite current restraint with peer competitors.

Institutional Memory Loss: Systematic withdrawal from international organizations reduces U.S. ability to gather intelligence, coordinate responses, and maintain influence in specialized domains. Short-term leverage gains may produce long-term information disadvantages.

Conclusion: Rationality Without Restraint

Trump's presidency represents not the absence of strategy, but the return of raw power bargaining under asymmetric conditions, stripped of institutional mediation.

The first year of his second term provides overwhelming empirical support for the game-theoretic interpretation:

NATO spending increased to historic 5% commitment through coercion
Major trading partners accepted framework agreements favorable to U.S. interests
Venezuela's regime was overthrown through unilateral military action
China extended tariff truces rather than escalate
Europe found itself squeezed between U.S. and Chinese pressure with limited autonomous response capacity
Congressional constraints proved marginal to executive action
Institutional erosion proceeded systematically through withdrawal from 66 organizations

Each outcome was predicted by the asymmetric bargaining model. Each was derided as impossible or irrational before occurring. Each revealed accurate Trump understanding of opponent reaction functions and structural dependencies.

For G7 policymakers, the central danger lies not in Trump's unpredictability—but in mistaking rational coercion for irrational chaos.

The former can be countered through:

Structural changes reducing dependencies
Coalition-building with other middle powers
Credible demonstrations of willingness to absorb costs
Development of genuine outside options

The latter cannot be countered—only endured.

Understanding the difference is now a strategic necessity. The evidence suggests we face the former. Responding as if we face the latter guarantees continued strategic failure.

Strategic Recommendation: G7 leaders must abandon hope that "normality" will return and instead fundamentally restructure their strategic positions to operate effectively in an environment where the United States systematically exploits asymmetric power through norm-breaking coercion. This requires accepting near-term costs—including potential economic disruption and reduced U.S. security commitment certainty—to build long-term structural autonomy.

The alternative is continued exploitation of predictable reaction functions by an opponent who has demonstrated both capability and willingness to do so.

This analysis draws on game theory, bargaining theory, and grand strategy literature to interpret observed behavior patterns from January 2025 through January 2026. All empirical claims reference publicly reported events and policy announcements.

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Tuesday, 20 January 2026