Thinking Strategically while Getting Punched in the Mouth

Canada, and other countries, were just punched in the mouth by the threat of tariffs imposed by the US. When faced with a problem, some people propose a “plan” to fix it but a plan is not a strategy. Strategizing is hard work.

Some memorable quotes offer memorable advice.

• Mike Tyson (World Heavyweight Champion boxer) said the most memorable: “Everybody has a plan until they get hit.” Fewer people remember Tyson’s reason: “Then, like a rat, they stop in fear and freeze.”
• More than 100 years ago, Field Marshall von Moltke said, “No plan of operations extends with any certainty beyond the first encounter with the main enemy forces.” Fewer people remember that von Moltke’s reason differs: “Only the layman believes that in the course of a campaign he sees the consistent implementation of an original thought that has been considered in advance in every detail and retained to the end.”
• Writing about 2500 years ago, Sun Tzu is remembered for a more hopeful saying: “If you know the enemy and know yourself, you need not fear the result of a hundred battles.”

The obvious lesson from this advice is that fear and ignorance lead to bad outcomes.

Canada had a plan for its economic future and recent media reports contain lots of evidence that Tyson’s advice is valid: e.g., emotional patriotic reactions, fear of a bully and media reports on severe economic consequences.

Canada’s response to Trump’s Tariff Tempest illustrates many of the differences between a plan and a strategy. Currently, proposed solutions [1] [2] [3] [4] are disparate and not yet coherent. Some ideas have been proposed before and were unable to overcome various hurdles: e.g., reduce interprovincial trade barriers; encourage businesses to sell to countries other than the US. Some people say “Buy Canadian”. This strategy is impractical if everybody tries to buy from a fixed number of Canadian producers. Retaliating involves little imagination.

Small businesses and big companies face similar challenges all the time: they plan when they should be deciding on a strategy. “Planning” emphasizes intent, which can be valid independent of the situation. “Strategizing” emphasizes combining actions to produce an outcome. Strategizing successfully requires knowing the facts about a situation which is why, ordinarily, businesses conduct careful market analyses of their consumers and competitors.

Usually-reliable facts become unstable in a strategic situation, as von Moltke’s advice suggests. A good decision should ignore facts which are true currently if those facts change because of the decision. Thinking only one step ahead, where your action causes their reaction, leads to predictable mistakes. It is wrong to think of their reaction as your “bad luck”. A different perspective on decision making is needed.

Game theory explores the interdependence of decisions by multiple independent actors and the “rules of the game”. Some people find the theory counter-intuitive but studying it is needs to know if your reaction to their reaction and vice versa are mutually compatible. There are many examples of situations where the outcome from a seemingly-good decision depends on how others react: e.g. “Prisoner’s Dilemma” or “Chicken”.

Imagination concerning the margins of adjustment in a reaction can lead to surprising outcomes. Given Trump’s “plan” for Canada to become the 51st state within the USA, it would be interesting to talk about Canadian provinces and territories becoming the 51st to 63rd states: Emphasize that the number of stars on the American flag would increase by 26% (a visible win). Do NOT mention how such an agreement would change the rules of the political game in the US!

Now, it is your turn to write.

• Tariff wars represent a paradox. The arguments in favour often describe international trade as a “zero-sum” game, and that it is better to a winner than to be a loser. Yet, the policies, plus retaliations (i.e., reactions), lead to all being worse off (a negative-sum outcome). Is there a way to change the rules of this game to generate the gains from trade expected by economists?
  • Hint 1: The “Prisoner’s Dilemma” game offers a simplified example which can be used to study the logic.
  • Hint 2: This question is hard to answer since, famously, Trump tends to break rules imposed by others.
  • Hint 3: There is a simple and “pretty good” solution in a repeated Prisoner’s Dilemma: the “Tit for Tat” strategy starts nice, retaliates, forgives and is clear.
• History offers examples where the US hurt themselves by reducing their imports while misunderstanding the reaction by other countries. Does history offer any lessons or advice?