題組內容

4. A current long-threatened trade war between the US and China has got under way after these two worlds' largest economies imposed tariffs on each other. We know so far the trade war between them continues.


(1) Suppose both U.S. and China have two trade strategies to follow: free trade or protection, e.g., imposing tariff on the products of the other country. Suppose also that the net payoffs of the combinations of the strategies of both U.S. and China are summarized in the following table:

If both U.S. and China act individually, what is the best trade strategy for each country? Please analyze the best strategy for each country according to the above table. (10%)