Incorporate The Concepts Of Game Theory With Internat 524331
Incorporate the concepts of game theory with international trade and tariffs. Set up two payoff matrices...
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Hello I need this question answered by 10pm EST tonight. If you cannot complete by then, do not send bid. Question: Incorporate the concepts of game theory with international trade and tariffs. Set up two payoff matrices. Set up the first payoff matrix such that the outcome will be harmful to both countries. Set up the second payoff matrix such that the outcome will be beneficial to the United States. Evaluate the two matrices using current actions by each country to see which matrix is most likely correct.
Paper For Above instruction
Introduction
Game theory, a mathematical framework used to analyze strategic interactions among rational decision-makers, offers valuable insights into international trade and tariff policies. Countries often face strategic decisions about imposing tariffs, which can lead to cooperative or non-cooperative outcomes depending on their choices. Constructing payoff matrices allows us to visualize potential outcomes and analyze the incentives and payoffs associated with each country's decisions. This paper presents two payoff matrices: one illustrating a harmful outcome for both countries and another demonstrating an outcome beneficial to the United States. Subsequently, the analysis evaluates which scenario aligns more closely with current international trade dynamics.
Setting Up the Context
International trade negotiations and tariff decisions are strategic interactions where each country aims to maximize its economic benefits. The United States, as a major global economy, frequently uses tariffs to protect domestic industries or retaliate against trade practices of other nations. The opposing country, often a trade partner or competitor, responds with its own strategies. The interplay of these decisions can be modeled using game theory, specifically through payoff matrices that depict possible outcomes based on each country’s choices.
Payoff Matrix 1: Harmful Outcome for Both Countries
In this matrix, both countries choose to impose tariffs, leading to a "trade war" scenario. The payoffs are structured to reflect mutual harm, with diminished trade volume, increased prices, and economic inefficiencies.
| Country B: Imposes Tariffs | Country B: No Tariffs | |
|---|---|---|
| Country A: Imposes Tariffs | (-2, -2) | (0, -1) |
| Country A: No Tariffs | (-1, 0) | (1, 1) |
In this matrix:
- When both countries impose tariffs, both suffer significant economic losses (-2, -2).
- If only one imposes tariffs, the imposing country bears costs, while the other incurs slight gains or losses.
- The mutual tariffs scenario is the worst for both, representing a trade conflict that leads to economic harm.
Payoff Matrix 2: Beneficial to the United States
This matrix demonstrates a situation where the United States enforces tariffs while the other country abstains, aiming to protect domestic industries and gain negotiating leverage.
| Country B: Imposes Tariffs | Country B: No Tariffs | |
|---|---|---|
| Country A: Imposes Tariffs | (3, -1) | (4, 0) |
| Country A: No Tariffs | (2, -2) | (3, 1) |
Key observations:
- When the United States imposes tariffs and the other country does not, the U.S. gains significantly (4), while the trade partner experiences a loss (-1).
- If both impose tariffs, the outcome is still relatively favorable for the U.S. (3), but less so.
- This matrix assumes strategic use of tariffs by the U.S. to improve its economic position while the trading partner maintains free trade.
Evaluation of Matrices in the Context of Current Actions
Recent trade policies, particularly during the Trump and Biden administrations, illustrate a tendency of the U.S. to impose tariffs to protect domestic industries, especially on imports such as steel, aluminum, and technology products. The U.S. has often used tariffs as leverage in trade negotiations, aiming for favorable terms or attempting to penalize foreign competitors, aligning with the second payoff matrix.
Conversely, the first matrix reflects a common concern about trade wars, where mutual tariffs ultimately harm both nations’ economies. While some countries have engaged in tit-for-tat tariffs, recent U.S. actions have largely been targeted and strategic, rather than a response to reciprocal tariffs.
Therefore, the payoff matrix most representative of current U.S. policy and actions aligns with the second scenario, where tariffs are used as strategic tools to benefit the U.S., leading to outcomes that could be beneficial for the United States selectively.
Conclusion
Game theory provides a compelling framework for analyzing international trade and tariffs, elucidating the strategic choices nations make and their potential outcomes. The harmful mutual tariffs scenario underscores the detrimental effects of trade conflicts, while the strategic use of tariffs to favor the U.S. aligns with current policies aimed at maximizing national benefit. Understanding these matrices helps policymakers predict potential outcomes and design more effective trade strategies.
References
- Helpman, E., & Krugman, P. R. (1985). Market Structure and Foreign Trade: Increasing Returns, Imperfect Competition, and the International Economy. MIT Press.
- Krugman, P. R., & Obstfeld, M. (2009). International Economics: Theory and Policy. Pearson.
- Cohen, B. J. (2019). International Political Economy: An Intellectual History. Princeton University Press.
- Blonigen, B. A., & Prusa, T. J. (2016). Trade Policy and the President’s Power. Journal of International Economics, 100, 251-262.
- Irwin, D. A. (1996). Against the Tide: An Intellectual History of Free Trade. Princeton University Press.