Since 2018, protectionism has made its way into global politics. This paper analyzes what has happened since then and the consequences of the trade war between the US and China unleashed by Donald Trump's administration. The trade war is examined from a game-theoretical perspective and furthermore, an assessment regarding future implications is also given.
In 2018, the administration of then-president Donald Trump put tariffs on Chinese products. This has provoked a backlash by the Chinese government in form of tariffs on American products, and following measures and countermeasures conducted by both sides quickly escalated into a trade war. “Trade wars are good, and easy to win”. These were the words president Trump confidently tweeted in March 2018. This paper is going to take a closer look at a situation which turns out to be a lot more complex than this tweet implicates. Trade war between the two biggest economies on earth unsurprisingly has a lot of consequences which are going to be examined in more detail. Furthermore, this paper will show that implications of this conflict exceed economic boundaries.
Table of Contents
1. Introduction
2. Theoretical Background
2.1 Literature Review
2.2 Current State of Research
2.3 Research gap
3. Political Impact of the Trade War
4. Game Theoretical Approach
4.1 Effects of the Trade War
4.2 Case Study: Huawei
5. Outlook
6. Conclusion
Research Objectives and Key Themes
This paper examines the background, emergence, and consequences of the trade war between the USA and China, evaluating whether protectionist measures have successfully achieved their stated goals through both economic analysis and a game-theoretical model.
- The historical development of US-China trade relations and the return of protectionism.
- Economic impacts of tariffs on consumers, domestic producers, and global value chains.
- Political drivers of trade policy and the use of retaliatory measures in election-sensitive regions.
- Application of game theory to explain the self-sustaining nature of the trade conflict.
- Case study analysis of the impact of trade restrictions on technological entities like Huawei.
Excerpt from the Book
4. Game Theoretical Approach
In the following, a game theoretical approach will be applied to show the dilemma the participants find themselves in. Harrison and Rutström argue for instance that the traditional approach of comparing welfare levels under protectionist structure and under unilateral or multilateral free trade does not provide a complete answer (1991: p.420). One advantage of a game theoretical approach is the consideration of other players´ behavior. In terms of this work, the approach will only display the situation between the USA and China, although the overall image is much more complex, involves more players (the EU, for instance) and is not limited to economic aspects, as shown in the previous section. In a prisoner´s dilemma, it is assumed that the actors behave rationally according to their preferences and choose their strategy simultaneously. In this case, that is the strategy of either choosing protectionism or free trade. A payoff matrix must be created to display the decision rankings of the two players. It shows four different outcomes, with 1 being the worst result and 4 being the best possible result for either player. The USA are on the left side as player 1, China is player 2 on top of the matrix.
Summary of Chapters
1. Introduction: Outlines the emergence of the US-China trade war starting in 2018 and defines key terminology essential for understanding the subsequent analysis.
2. Theoretical Background: Reviews academic literature regarding trade liberalization versus protectionism and summarizes the current state of research and existing knowledge gaps.
3. Political Impact of the Trade War: Explores how retaliatory measures were strategically targeted at specific regions to influence political electoral outcomes.
4. Game Theoretical Approach: Uses a payoff matrix to demonstrate why both nations remain trapped in a protectionist cycle despite the damaging long-term consequences, supported by a case study on Huawei.
5. Outlook: Analyzes the ongoing high-tenions and the continuation of protectionist policies under the Biden administration despite a change in presidential leadership.
6. Conclusion: Summarizes the findings, noting that economic losses currently outweigh marginal gains and advocating for a return to fair market conditions.
Keywords
Protectionism, Trade War, USA, China, Game Theory, Nash-Equilibrium, Tariffs, Huawei, Trade Deficit, Neoliberalism, Made in China 2025, Global Value Chains, Retaliation, Economic Policy, Free Trade
Frequently Asked Questions
What is the core focus of this research?
The work focuses on the return of protectionist trade policies between the United States and China, analyzing the motivations, economic consequences, and political implications of the ongoing trade dispute.
What are the primary thematic areas covered?
The paper covers the historical evolution of the conflict, the political alignment of tariffs, the use of game theory to explain the "prisoner's dilemma" between the two nations, and the impact on international business and technology.
What is the main research objective?
The objective is to determine if and to what extent protectionism has returned, while critically scrutinizing the effects and success of these measures toward achieving national economic goals.
Which scientific method is utilized in the analysis?
The paper employs a mixed-method approach, combining a review of existing literature and empirical studies with a dedicated game-theoretical analysis of the decision-making processes of both nations.
What topics are discussed in the main body of the work?
The main body examines the "America First" strategy, the economic impact of tariffs on welfare and market share, the political targeting of trade measures, and the case study of Huawei as a tech entity affected by national security justifications.
Which keywords best characterize this work?
Representative keywords include Protectionism, Trade War, Game Theory, Tariffs, Nash-Equilibrium, and Global Value Chains.
How does the author explain the "prisoner's dilemma" in this context?
The author uses a payoff matrix to show that while individual rational choices lead each country to prefer protectionism, this results in a collective outcome that is more damaging than if both had remained committed to free trade.
What is the significance of the Huawei case study?
The Huawei example illustrates how a trade dispute can expand into a technological "cold war," where national security claims are used to justify blacklisting companies, leading to significant drops in sales and revenue for the affected firm.
- Quote paper
- Steve Kamundi (Author), 2021, The USA and China. The return to protectionism?, Munich, GRIN Verlag, https://www.grin.com/document/1254919
