So the prospect of a trade war with China looms large now. I do not claim to be a China expert but we had one at the Eye of the Hawk lecture series at UND last year when Jim McGregor came to share his extensive experience related to China. What I do know is strategic thinking, game theory, international trade statistics and the like. Here is where we stand right now. The sanctions President Trump plans to impose are probably the most thought out policy of his tenure as President. There was a significant amount of input from people and there was not a great deal of rash and impulsive rhetoric (yet).
What else seems likely is that the different responses China might take have not been through through. What we heard from Mr. McGregor at the lecture was that the Chinese policy authorities have thought through the various different actions any other country might make and have a list of options they might choose to follow. We see that this week already with the suggestion of retaliation on other US products and the hint they might buy fewer bonds. Will these costs end up being more than any benefits we see from the policy change? It is way to early to tell.
Theft of intellectual property is a serious issue and should be punished, though we have not for many years. This is one of those areas where you could suggest the losses you incur as you move away from the free trade situation are worth it. However, the Trump administrations suggestion that others have not done this because they were weak is silly. I have more faith they made the calculation and decided it was not worth it, but these calculations can change over time.
So we have a thought out first move with little to no consideration for the next moves in the sequence. There is no chance an proper game theoretic approaches and a Nash equilibrium, where you make the best move based on the best move of your opponent, except by sheer luck. Essentially this policy may end up being a chess game where we hope the other side makes lots of silly moves.
That we can make a reasonable policy move and still lose as a result? Inconceivable!
