Morning Update: Finding patterns in the tariff war

Good morning. The world is in an economic stare down. But through a game theorist’s lens, this is known as an escalation game. More play on that below, along with a coin-toss rate decision and set up for tonight’s first federal leaders’ debate.

Today’s headlines

• Ottawa grants automakers tariff relief but warns of pullback if they cut domestic manufacturing or investment
• Mark Carney says Liberal’s costed platform will be released before advance polls close
• Alberta tables legislation on involuntary care for people with severe drug addictions, the first of its kind in Canada

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Trade

The Escalation Game

I’m Grant Robertson, an investigative reporter with The Globe.

A few weeks ago, I passed business editor Gary Salewicz in the hallway. After chatting about the markets, and tariffs, trying to decipher where this global trade war was heading and how companies and countries could seek to mitigate the damage, Gary had an offbeat idea: Why don’t we call the game theorists? Maybe they’re working on this problem.

It was an interesting thought, particularly as everyone from governments to Bay Street was grasping for answers on how to move forward. My curiosity was piqued.

It was one of two thought exercises we ran, trying to examine how this tariff war might play out. My colleague Joe Castaldo also spoke with experienced negotiators for their thoughts on what may – or may not – work during trade talks (more on that below).

Game theory, which straddles economics and political science, is an attempt at using complex math to guide human decisions in order to outmanoeuvre an opponent.

The game theorists in question were Open Options Corp., a strategic consulting firm in the tech hub of Waterloo, Ont. I knew them from my days as a business reporter, when they were working on building predictive models for use in mergers and acquisitions, helping companies pursue deals.

Their backstory seemed ripped from a spy novel: A Canadian professor designs software in the late 1980s to rapidly speed up game-theory calculations and soon the CIA comes calling, offering to fund his project if he helps the agency map out unseen permutations inherent in the collapse of the Soviet Union. A few years later, founder Niall Fraser struck out on his own and turned his focus to the corporate world.

When I caught up with Fraser and Open Options president Tim Jeske, they were, in fact, hunkered down working on the tariff problem, trying to map out strategies for clients, including those in the auto, energy and fertilizer sectors.

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So, what is the playbook for navigating a tariff war? Fraser and Jeske have good news and bad. The world is now caught in what the game theorists call an escalation game, or a version of one. These are dangerous scenarios; few sides emerge unscathed, but there are strategies for containing the fallout.

“Escalation games are generally destructive. They destroy value. Both parties will lose. The best strategy is to not get into one,” Jeske says. “But once you’re in one, the strategy is to full commit to it.”

As we see the tariff war unfold, with countries like Canada hitting back with reciprocal tariffs on certain products, others like Australia waiting on the sidelines, and China locked in a heated back-and-forth with the White House in recent days, these concepts are now playing out in real time.

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But it’s not only the game theorists who are rolling up their sleeves in an attempt to explain this turmoil.

Approaching the problem from another angle, Joe talked to experts about strategies that could be deployed around the negotiating table. And there is no single solution: Flattery, leverage, hardball tactics and restraint all have a role in the current situation.

“Anyone dealing with Trump has to figure out a restrained form of forcing that lets Trump know that he can’t just walk over you but doesn’t trigger an escalating conflict,” says Joel Cutcher-Gershenfeld, a professor at Brandeis University in Massachusetts who teaches negotiation strategy.

They are thought exercises that help wrap context around the headlines, from the arms-race rhetoric now being deployed by world leaders to the moves and countermoves happening in steady succession. There is no crystal ball, but there are those who have seen these scenarios before.

More on tariffs

• Why tariffs may mean Canadians could pay more for some Canadian brands at home
• Harvard versus Trump is the new battle for independence
• China has sights set on the EU as the U.S. shields itself with tariffs. The EU is not so sure

Election 2025

‘Calgary is not what it used to be like.’

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The population of Calgary has roughly doubled in 30 years, and that boom brings big hopes and gnawing worries. Northeast Calgary, what used to be sprawling prairie, is now a bustling immigrant landing pad where big ambitions mix with election campaign anxieties about costs, overcrowding, crime, tariffs and, yes, even immigration.

Read more

• Starting today: Five federal party leaders are set for two nights of debates
• Opinion: The hidden costs of Liberal and Conservative election promises
• Catch up: Here’s what happened yesterday on the campaign trail

The Wrap

What else we’re following

At home: Canadian inflation surprisingly eased ahead of today’s coin-toss Bank of Canada rate decision.

Abroad: An Israeli air strike hit near a hospital in the Gaza Strip, killing a medic and wounding nine other people, a hospital spokesperson said.

Past: A new documentary takes Canada’s Coronation Girls back to Britain, where they travelled for the coronation of Queen Elizabeth, in time to meet the next monarch.

Present: The Northern Super League makes its long-awaited debut today as the first Canadian pro soccer league for women.

Future: Hearings in May about the Online Streaming Act will attempt to determine what counts as Canadian content.