Unfairness and Trump's tariff policy

Published in The Sunday Times on 11^th May 2025.

On a Paris night in November 2009, the hearts of Irish soccer fans were broken. It was the second leg of the playoff to qualify for the 2010 World Cup in South Africa. The aggregate score was when, in extra time, Thierry Henry controlled the ball with his hand before assisting William Gallas for the decisive goal. France won 2-1 on aggregate, knocking Ireland out. 

That stark image of unfairness – the freeze frame shot of Henry’s hand on the ball – adorned newspapers for weeks afterwards.

Tariff rhetoric steeped in unfairness

With all the tariff rhetoric of the last few months, I’ve been reminded of this incident. The language around tariffs is cloaked in references to a lack of fairness, reciprocity and setting the balance straight.

In traditional economics, the "rational agent" model assumes that people are unemotional and largely indifferent to fairness. Unfairness doesn’t matter, only outcomes do.

But economics has undergone a major shift away from the traditional “rational agent” model towards a more nuanced understanding of behaviour promulgated by behavioural economists. 

For example, people won’t drink wine they own that has risen a lot in value but won’t sell it at that price either. They will continue to watch a terrible film in a cinema because the cost has already been borne. And will drive a large distance to save €5 on a small purchase but won’t bother for a large one. In short, people are not rational – or at least, that rationality has its limits. –

We have a deeply ingrained bias against unfairness

Behavioural economics integrates these psychological insights, providing a more realistic model of human behaviour. And this is what explains Trump’s reciprocal Tariffs – which may be anything but. He has justified them on the basis of trade being unfair and the US being taken advantage of.

People (and nations) have a deeply ingrained psychological bias toward fairness. We often prefer mutual harm over unilateral disadvantage. When someone feels they’re being treated unfairly, they’re often willing to take costly retaliatory action – even if it hurts themselves – just to restore a sense of justice or balance. I’m thinking more of the tariffed nations here than the US.

In behavioural economics, there is a long running experiment on fairness called the ultimatum game. In a laboratory setting, one person is given an allotment of money (€100) and instructed to offer a second person a portion. If the second player says yes to the offer, both keep the cash. If the second player says no, both walk away with nothing.

Richard Thaler, a Nobel Prize-winning behavioural scientist, suggests that people don’t just “not like” unfairness, they “hate” unfairness and would sacrifice themselves to punish those who are behaving unfairly. The rational move in the ultimatum game is for the second person to take whatever is offered – it’s more than they came in with. But in practice, most people reject offers of less than 30 percent of the total, punishing offers they perceive as unfair.

Unfairness and trade

If this is the sort of thinking that is dominating in negotiations, I can’t see how this will end well for anyone. Free trade has been a great enabler for economic progress. There’s a chance the 90-day pause on reciprocal tariffs may produce something less harmful. We live in hope – a quirk behavioural scientists often highlight. Trump has unleashed the fairness genie, but I think behavioural economics can help put it back.

To move beyond trade wars and retaliatory tariffs, we need to move beyond thinking about this in traditional economic ways.

The trade narrative needs to be reframed

The current narrative needs to be reframed. Trade is depicted as being a zero-sum game, not mutually beneficial. Trump has focused on perceived unfairness, regardless of data. Behavioural economists have an important role here.

People don’t respond to facts neutrally – as Nobel laureate Daniel Kahneman has shown, they react based on framing, emotion, and context. The way choices are framed can lead to completely different decisions, even when the outcomes are the same.

Imagine you were seriously ill, and your doctor told you there were two medications available: One that is 90% effective or one with a 10% chance of failure. Which would you choose?

People are loss-averse, they dislike losing more than they enjoy gaining. So, a “10% failure” label triggers loss-thinking, while “90% effective” taps into gain-thinking. And so, people overwhelmingly choose the first version. It's not what you say, it's how you say it.

Advice on tariff negotiations

My advice to those involved in negotiations with the US is this: It’s important to acknowledge fairness as a key driver of cooperation, not just efficiency. But the narrative needs to be reframed around mutual benefit, not winning or losing.  

Trade wars often tap into nationalism, making compromise politically unpalatable. So, solutions may need to be framed as mutually respectful deals, rather than concessions to the other side.

The emphasis should be on shared wins such as economic stability, innovation, and jobs – a tack the Irish Government has taken. Offering politically safe narratives like rebalancing rather than retreating or backtracking.

Unlike Ireland’s chances of qualifying for the 2010 World Cup, there is a way back from the brink in relation to the current tariff lunacy. It will take more than words, but they are much more important than you might think.

Gary Connolly is Investment Director at Davy. He can be contacted at gary.connolly@davy.ie or on X at @gconno1.