Game Theory to International Trade and Tariffs Economics Paper

Game Theory to International Trade and Tariffs
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Game Theory to International Trade and Tariffs
In this paper, the game theory is applied to the current US-China trade war, where both countries are engaged in raising the tariffs. While referring to the game theory, there are two options available for each country: increase the tariffs or not to increase the tariffs on international trade. Two payoff matrices are shown as below:
Harmful Outcomes for Both the Countries
The United States (Column)

Trade War

Increasing the Tariffs

Not to Increase the Tariffs

China (Row)

Increasing the Tariffs

1,1

4,4


Not to Increase the Tariffs

1,1

4,4

The payoff matrix ab...