August 04, 2025

Game Over?

How the United States Could Have Won the Trade Wars

By: Emily Kilcrease and Geoffrey Gertz

Executive Summary

The Center for a New American Security's Energy, Economics, and Security (EES) Program designed and conducted an economic wargame to explore possible pathways to resolve the trade wars sparked by historic levels of U.S. tariff escalation. This trade wargame was designed to examine foreign government responses to U.S. tariffs, including whether they would retaliate, negotiate, and/or make concessions. After being punished by U.S. tariffs, would foreign governments have the appetite to engage in dealmaking with the United States and, if so, under what conditions? The trade wargame was conducted on March 17, 2025, two weeks before President Donald Trump made his real-world announcement of shockingly high tariff rates on a day he deemed “Liberation Day.”

Key Insights

In the game, the trade wars ended on a relatively positive note, in which U.S. tariff escalation built political momentum toward the creation of a trading network comprising America and its close partners. The U.S. team successfully brokered deals with the Europe and North America teams and certain other countries in the game to address long-standing irritants in their trading relationships, reduce the overall levels of U.S. tariffs, and align on common derisking policies toward China. The game’s outcome should not be seen as predictive, but instead as helpful in illuminating the various factors that could drive government decision-making toward a relatively more positive resolution of the trade wars in the real world. These factors include the following four key insights:

Economic gravity is hard to fight. Teams representing Europe, North America, and other countries—all of whose real-world economies are more trade dependent than the U.S. economy and rely on exports to the U.S. market for a substantial portion of their gross domestic product—assessed that the U.S. team enjoyed escalation dominance. While political leaders from these countries may have deep reservations about U.S. policy toward their countries, they often have no choice but to seek a fast resolution to the abrupt damage caused by devastating U.S. tariffs. Players reflected this dynamic, prioritizing reaching a deal with the United States above broader, longer-term trade diversification efforts.

Foreign governments may be incentivized to de-escalate security issues to keep trade talks on track—at least to a point. The game introduced security issues to force players to contend with the potential for a broader breakdown in relations between the United States and its allies. Players on the Europe and North America teams consistently de-escalated the security issues to allow space for continued negotiations on trade issues. Real-world negotiators may similarly be able to successfully compartmentalize security issues, particularly if they perceive an urgent need to resolve the trade wars. This may hold so long as the United States does not cross particular redlines that may decisively turn public opinion in foreign countries against the United States and erode a political mandate to negotiate on trade.

Negotiators are more likely to reach agreements when they are flexible and expand the deal space. The U.S. team was open to negotiating away most tariffs, but not those designed to onshore production of certain strategic goods—which constrained some dealmaking. On the other hand, teams were creative in crafting agreements that expanded far beyond just tariff negotiations to also include elimination of nontariff barriers, alignment on counter-China measures, promised investment in the United States, and commitments to buy U.S. goods. In the real world, reporting suggests the United States is also seeking to link nontrade issues, such as defense spending, to the rollback of tariffs, further expanding the scope of potential dealmaking and off-ramps.

China is unlikely to capitalize on the trade wars to emerge as the new leader of the global economic order but may make inroads with certain countries in the Global South. Players representing major industrialized nations showed a clear preference for working with the U.S. team rather than the China team, so long as they perceived that the U.S. team was open to good-faith negotiations. This likely reflected a clear assessment of their own economic and security interests in derisking from China, as well as a more pessimistic view of the attractiveness of the China market. These country teams were also willing to take meaningful counter-China actions as part of their broader deal with the U.S. team, cutting the China team out of the emerging trading bloc. The rest-of-the-world team, however, hedged hard, reflecting a risk for the United States in the real world that some countries may opt to deepen trade links with China instead of the United States, depending on how the United States handles specific negotiations.

The Path Ahead

The trade wargame suggests that sustained high tariffs could create leverage and urgency to spur action toward a productive restructuring of the international trade system, resulting in deeper integration among close security partners and coordinated derisking from China. In the real-world trade wars, however, it is unclear if the Trump administration has either the inclination or ability to carry out such a strategy. The chaotic, unpredictable nature of the tariff policy the Trump administration has pursued in recent months—marked by dramatic overreach and then unilateral reversals—has sharply eroded U.S. negotiating credibility, which will make it difficult, if not outright impossible, for the Trump administration to mirror the success of the U.S. team in the EES trade wargame.

The trade wargame suggests that sustained high tariffs could create leverage and urgency to spur action toward a productive restructuring of the international trade system.

Despite the Trump administration’s missteps, however, there are certain external constraints emerging in the real world that may nudge the president away from his chaotic, unilateral approach toward a more strategic and methodical manner. Mounting economic pressures, particularly in the U.S. bond market, alongside growing political pushback and potential legal checks, may collectively serve to box in some of the president’s more extreme tariff impulses. It is conceivable these factors could push the real-world U.S. administration toward a strategy more closely aligned with that of the U.S. team in the game, which used sustained, credible tariffs as leverage to negotiate mutually beneficial, lasting new trade arrangements with its close allies and partners. But the window for realizing such an outcome may be rapidly closing.

Introduction

These are not your normal trade wars. President Donald Trump has raised U.S. tariffs to levels unseen in the modern era of globalization, rattling markets and unnerving foreign governments along the way. He has imposed tariffs on close security partners and strategic adversaries alike, citing a multitude of shifting rationales for doing so. Everything is on the table, from traditional trade issues, such as disputes over unfair trade practices, to security priorities, such as immigration and drug trafficking. The tariffs have been imposed without regard for existing U.S. trade obligations; indeed, much of the point seems to be to rip up the existing rulebook and replace it with something else, though what that something else is remains to be seen.

With sweeping tariffs announced on nearly every country in the world, it is now clear how the U.S. trade wars start—but is yet to be seen how they will end. The U.S. economy has, for decades, depended on open trade flows and access to global markets. With a few swoops of his pen, President Trump has upended this paradigm, placing a series of risky bets collateralized by the strength of the U.S. market. He has bet that the allure of the U.S. market, and the risk of being cut off through aggressive U.S. tariffs, will provide the United States immense leverage to renegotiate the terms of its trading relationships. He has bet that the U.S. economy would be better off behind a tariff wall that incentivizes higher investment domestically. And he has bet that this can all be accomplished while tariffs generate revenue for the U.S. government and are paid for by the sending country.

Will these bets pay off, and importantly, can they all pay off? Or will the president be forced to choose between the competing goals of his tariff strategy? And will he stick to a strategy, or will U.S. trade policy continue to be characterized by a chaotic, on-again, off-again dynamic that makes planning and negotiation nearly impossible? Many factors will matter, including how the U.S. economy responds to the president’s bets, whether courts uphold his actions as lawful, and how voters perceive the costs and benefits of a tariffs-first approach to international economics. This report focuses on one additional factor: the willingness of foreign governments to play along with the president to achieve a hard reset of the global trading system. The ability of the United States to work productively with foreign partners to strike new trade deals after a period of intense tariff hostility will be critically important in determining how the trade wars end.

These are not your normal trade wars. President Donald Trump has raised U.S. tariffs to levels unseen in the modern era of globalization.

This report focuses on the international political economy aspects of the trade wars, analyzing the diplomatic and political ramifications of tariffs. This political focus is not to discount the very real economic impacts of tariffs. High U.S. tariffs are likely to have serious economic consequences for the global economy and could result in long-term harms to U.S. productivity and competitiveness. For this report, the authors set those important issues aside and instead focus on the more narrow question of how foreign government responses may impact the administration’s tariff plans.

The first section of this report describes the design and research objectives of the trade wargame the Energy, Economics, and Security (EES) Program at the Center for a New American Security (CNAS) conducted. The second section lays out the key insights from the game, including identifying factors that, under the right conditions, could contribute to a relatively positive resolution of the trade wars.

The third section assesses if there is still a window in the real-world trade wars for the Trump administration to seek a productive restructuring of the global trade order, including if emergent external constraints may push the president away from his chaotic impulses toward a more methodical, strategic tariff policy. The report concludes by identifying some of the steps the administration would need to take to put the trade wars back on track toward a more positive outcome, should the president choose—or more realistically, be forced by external constraints—to moderate his trade policy.

A World Safe for Prosperity

This report is part of the EES Program’s A World Safe for Prosperity initiative, which informs U.S. policymakers, private sector stakeholders, and international counterparts on how to update the global economic order to reflect the rise of economic security as a key feature of government policymaking.

Read the full report

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  1. Josh Smith and John Geddie, “Trump Includes US Troop Costs in Tariff Talks with Asian Allies,” Reuters, April 17, 2025, https://www.reuters.com/world/trump-includes-us-troop-costs-tariff-talks-with-asian-allies-2025-04-17/. ↩

Authors

  • Emily Kilcrease

    Senior Fellow and Director, Energy, Economics and Security Program

    Emily Kilcrease is a senior fellow and director of the Energy, Economics, and Security Program at the Center for a New American Security (CNAS). Her research focuses on the U....

  • Geoffrey Gertz

    Senior Fellow, Energy, Economics & Security Program

    Geoffrey Gertz is a senior fellow with the Energy, Economics, and Security Program at the Center for a New American Security (CNAS). His research focuses on economic tools for...

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