The Conundrum of US-China Trade Relations Through Game Theory Modelling

Abstract

The United States and China are the two largest economies in the world. However, multi-dimensional disputes put the U.S. and China onto the brink of trade war. To solve this difficult conundrum, each side seeks to profoundly change the adversary’s strategic calculus at little cost and with little risk. The Trump Administration has revived protectionism to U.S. trade policy placing great uncertainty on US-China trade relations. This paper uses game theory to model and illustrate the possible actions and outcomes in the trade conduct between the U.S. and China for the implementation of border tariffs and sector targeted protectionism.