The Chinese have hit back. China has announced new tariffs in retaliation to the levies on $50 billion worth of imports that the US has imposed. The question worth asking is this: Does the US eventually want to bring down the global trade system it has protected till now or is it merely trying to force mercantilist China to come to the negotiating table?
The risks to the global economy are far higher in case it is the first option rather than the second. However, optimists must be careful not to ignore the possibility that the second option could lead to escalation that neither country can then control.
A game theorist would find striking similarities in the trade war to two standard situations—the game of chicken and the prisoners’ dilemma. Either of them can have disastrous consequences as each player is tempted to play hawk and refuse to cooperate.
Game theory came into its own during the peak of the Cold War between two superpowers. It will have resonance in the ongoing trade clash with the two superpowers of our times.