Trump’s Trade Strategy and Game Theory
In Bloomberg’s article, “What Game Theory Says About Trump’s Trade Strategy”, the author discusses the ongoing trade war that has recently ensued between the US and China. China has a history of promoting a trade strategy that favors domestic production and encourages the theft of American intellectual property, leading the Trump administration to retaliate by setting forth insanely high tariffs on many Chinese exports. From passing cybersecurity laws that favor domestically made goods to requiring American companies establish joint ventures with Chinese companies, China is making every possible effort to push their own countries agenda forward without regard for the domestic and foreign impacts. While the US feels the need to fight back, establishing tariffs is not the way to go about stopping China’s unfair trade practices and market access restrictions. Many US companies have a lot of their supply chains in China and by placing tariffs on certain parts of their products, the overall price will increase and ultimately place a burden on US consumers and companies.
The trade war between the US and China can ultimately be thought of in terms of a game theory context. If both countries cease their aggressive policies on trade practices and market access restrictions, then product prices stabilize and intellectual property doesn’t get stolen; however, if we look at this from an individual country’s perspective, each of them are trying to do what is best for their own people. So, if one of the countries implements an unfair trade practice or tariff, then the other will retaliate, ultimately creating a trade war. While China’s policy of domestic growth may work in the short term, they will be met with harsh consequences like tariffs from the US or other foreign countries. Furthermore, if the US implements tariffs, the Chinese will respond in tightening market access. This scenario is similar to that of the prisoner’s dilemma where two rational parties might choose to act with regard to their own agendas despite it being in everyone’s best interest to cooperate. Because China initiated these unfair trade practices in the first place instead of solely focusing on promoting innovation and education in their own country, they have incentivized the US to fight back, which ultimately hurts Chinese consumers as well as US consumers.