This is a short piece on what’s going on with the tariffs and the market reaction. A lot of people are trying to figure out how other countries will respond, so I’ll offer some emotion-centered thoughts on this.

The Fight or Flight Response

The “fight or flight” response is a basic neurological mechanism that an animal experiences when it is threatened. In a split second, the animal decides whether it will stand its ground and fight, or if it will run away. The underlying emotions are anger—the emotion all of us summon in order to fight—and fear, the emotion we feel when we decide to run away. The decision to fight or flee comes down to whether the emotion of anger or fear is stronger.

Countries around the world are experiencing this neurological response at a macro scale in response the U.S. administration’s tariffs. I think understanding how ordinary people—and by extension their political leaders—are feeling about the new “threat” from the United States is key to understanding how they will respond.

Who Decides to Fight, and Who Decides to Flee?

When I am deciding to fight or flee, my decision is driven by two things: one, can I deal with the consequences of fighting, and two, do I see myself as someone who fights or someone that flees.

The Consequences of Fighting

When a playground bully shoves me into a wall and demands my lunch money, I can resist, or I can acquiesce to his demands. If I resist, I know he is going to beat me up, or at least he is going to try.

Part of my decision comes down to: “If I resist, can I live with the consequences?” If I can’t tolerate the pain of getting beat up, I’ll turn over my lunch money or whatever the bully wants. If I can tolerate the pain, I’ll fight.

Note that an encounter with a schoolyard bully is different from being mugged by somebody in a favela in Sao Paolo. The consequences are different. Schoolyard bullies don’t typically kill other kids. Gangsters might. If the consequence of refusal is death, and I can survive the loss, AND I’m unlikely to see the mugger again (i.e., learned my lesson, never going back into a favela again), I’ll probably just hand over my wallet.

Conversely, if I hand over my lunch money, will the bully be satisfied with that, or will he come back tomorrow for more?

Am I Someone Who Fights, or Someone Who Flees?

Two kinds of people tend to fight.

Big or popular kids generally don’t get picked on, because the bully understands that if he starts a fight with them, he’s likely to get hurt as well. So the bully doesn’t come after them in the first place. And if they do get picked on, their internal self-confidence from size or popularity helps them understand that they have the means to fight back.

Other people understand that if they give in to the bully, he’ll be back for more. So they develop an identity of being someone who stands their ground and fights. Moreover, these people also experience a third emotion—shame—after they give in to the bully once. Eventually, the shame and the anger together overpower the fear, and they start to stand up for themselves.

Which Countries Will Fight, and Which Will Flee?

We are already seeing a split in how countries are responding to the tariffs. And again, I don’t think Trump is acting out of malice—I think he genuinely hates trade deficits and feels like they are unfair (his underlying emotion is anger).

Small- and medium-sized countries, like Bangladesh [FT, paywalled] and Vietnam [FT, paywalled], have already signaled that they are willing to reduce tariffs and purchase more U.S. goods. These countries have calculated that getting beat up will be too painful, and they don’t have self-images of being big or popular kids.

But there are countries in the world that are big and popular, or see themselves that way, and I expect them to fight back.

China

The biggest of them all. China has already said “[i]f war is what the US wants, be it a tariff war, a trade war or any other type of war, we're ready to fight till the end.” I think they’re serious.

What emotion do you think is dominant for Xi Jinping right now? Anger or fear? And don’t forget shame—the Chinese have not forgotten their century of humiliation at the hands of foreigners.

India

The other very big kid, maybe even bigger than China. Unlike Europe and Japan, India has resisted becoming part of the U.S.-led alliance system for decades. During the Cold War, India pursued a policy of nonalignment between the U.S. and the Soviet Union. In part, this is because India is a big and powerful kid that doesn’t see itself as being the second fiddle to anyone.

Much like China, national pride runs very deep among the population, probably also because it suffered a period of humiliation. Shame and anger are powerful emotions.

Europe

I think Europe is a big kid that is only beginning to realize how big he is.

To me, the watershed event here was Germany’s decision to relax its rules around deficit spending, largely to support a much stronger army. The Europeans have realized they can’t count on the U.S. to underwrite their defense, and so they are finally starting to take responsibility for it themselves (incidentally, another thing I agree with the President on, even though I don’t agree with the execution).

To me, the main question is, what is the dominant emotion that the Europeans are feeling? Is it fear, or is it anger? Are ordinary Europeans afraid of Donald Trump and Elon Musk, or are they angry at them? If it’s anger, how will they take it out? The Europeans have always hated the dominance of the U.S. technology firms. They remember the pictures of Zuck and Bezos at Trump’s inauguration. What would a digital tax on social media advertising do to Meta’s EU-based revenues (34%, according to a Google/AI search), and what would that in turn do to Meta’s valuation?

If the bully is coming for Europe’s lunch money, he might be surprised when Europe punches back.