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US and china are engaged in a trade war. I believe the game they are engaged in is a repeated game with finite number of periods. I say this because the amount of imports affected by tariffs finite. Tariffs are already planned for $250 billion worth of imports and there is only an additional $255 billions of imports that can be subject to a tariff. If US and China continue with this game, they would end up with tariffs on every dollar from traded goods.

The response from China would be additional Tariffs matching tariffs imposed by US. This is similar to the response from China previously when China matched US tariffs on $34 billion worth of goods. Both US and China have two strategies: Impose tariffs and Do nothing. If one player imposes a tariff the other player responds with imposing tariffs as well.

The consumers will be the losers in this game as the tariffs will increase prices across the board for imported goods which range from dietary products to high tech gadgets. Eventually this will affect demand which will slow down the economic growth in both countries if the trade war escalates.

Post Author: admin