The US-China Trade War
Engaging in an altercation with a trading partner seems like a poor choice. However, it is not entirely illogical. It might be a good way for measuring a partner’s weaknesses to achieve a better trade payoff. Enacting tariffs enables one partner to learn about the other, especially regarding its willingness to reciprocate. The US, in starting its trade war with China, is relying on previous experiences that proved successful, such as issuing threats of tariff imposition on South Korean steel and aluminum imports, leading to South Korea offering concessions to avoid the tariffs. The current US-China trade war has led to the implementation of $34 billion, with $16 billion more, ready to be imposed, by each of the two countries. China has threatened to impose tariffs on a total of $60 billion of US imports, while the US has threatened to impose tariffs on $200 billion’ worth of Chinese imports (Mayeda n.pg).
From the perspective of “prisoners’ dilemma”, if the two countries continue engaging in defective strategies, as they are doing currently, then both of them might end up in a bad “Nash equilibrium”, meaning, the outcomes for both of them will be much worse than if they choose to cooperate with each other. It has been projected that, should the two countries continue choosing strategies that serve to protect their best interests during uncertainty, the global output will probably decrease by one to …
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