It is tempting to interpret the situation as absurd brinkmanship as the US and China escalate their trade dispute through tit-for-tat levies.
However, beneath the surface, the routine resembles a well-known economics architecture, particularly the” Prisoner’s Dilemma” in sport idea, which is complicated by politics, national pride, and domestic politics ‘ experiences.
In the traditional Prisoner’s Dilemma, two players ( in this case, China and the US) have the option of cooperating ( lower tariffs, open trade ) or defying ( higher tariffs, trade restrictions ). The rewards are obvious:
- If both parties cooperate, both parties gain and no one “loses mouth.”
- If one cooperates but the other does not, the defector gains market share and a strategic advantage while the cooperator appears poor and suffers economically and socially.
- If both suffer, both suffer, but at least neither “loses face” to the other.
Mutually beneficial cooperation would undoubtedly be the most advantageous outcome, essentially economically. However, losing one’s experience in this situation has more serious repercussions.
For Beijing, being viewed as clinging to American force would not only damage its international standing but also its domestic social standing.
Being” hard on China” remains a significant political asset for Washington, especially under an leadership that is defined by its contextual design.
Time, respect, and Trump
This particular generation of the Prisoner’s Dilemma is much more complicated thanks to two more relationships.
Second, there is a terrible amount of trust. Due to President Trump’s well-known capriciousness, counterparties are rightly wary of any guarantees.
Depending on local political trends and lobbying preferences, deals may be reversed, tariffs can be raised without warning, and political logic frequently shifts.
Second, at least from China’s point of view, this is not a sport that repeats itself. Recurrent interactions, as explained in sport theory, encourage cooperation because each part is aware that several rounds will have the same consequences.
China is aware that it might only need one word or perhaps just another year of Trump’s administration to survive. There is little opportunity for Trump to generate significant agreements now that the US midterm elections are looming.
The safest move is to defect when the match is short-term, regardless of the broader economic value. Vietnam provides a somber illustration of what occurs when a player attempts to cooperate to first.
US officials flatly rejected Vietnam’s proposal to remove tariffs on US products, criticizing its trade deficit and accusing it of “dumping” cheap products like crab into the American market instead of rewarding the provide.
The training for China was clear: allowing too much time does not guarantee mercy. However, it might just entice more requirements.
More than just business
The effects of the joint dissolution extend far beyond the taxes themselves. Global supply chains are shifting as businesses try to diversify away from US- or China-centric types.
Rather, they are making investments in Southeast Asia, Latin America, and perhaps Africa, thinking of them as potential final-demand destinations rather than just as offshore producing bases. As nations look for alternatives in a fragmented global order, intra-Asian trade is growing.
In the US, political discourse has gotten more and more zero-sum: if China benefits, America may lose. This allows for the detail and compromise that are usually required by international trade agreements.
The price war is no longer simply an economic dispute as a result. It is a battle between political influence, pride, and narrative.
No simple way out
In a perfect world, both parties do acknowledge the harm done to one side and get a quick fix.
However, with trust waning, opportunities being misaligned, and the social cost of losing being always so great, common departure has turned into the Nash Equilibrium. Both sides want to scale up, and both would prefer to lose economically over appear weak.
The true horror is not just those in the taxes themselves. The root of distrust has been compromised, making teamwork more difficult both now and in the future. There are still two large options for breaking the damaging cycle: changing the paybacks and finding a face-saving leave.
The first is when departure turns out to be much more painful than assistance. This may occur if the social benefits of “looking hard” begin to outweigh the local costs of the tariff war, which include slower growth, inflation, declining exports, and a louder backlash from disturbed industries.
The second path is more psychological, but it is still significant. Both Trump and Xi have strongman personas, but neither is likely to back down without creating a compelling narrative that will prevent their faces from fading.
This might be a temporary truce that is characterized as a” strategic recalibration” or even cooperation in response to a larger crisis that draws attention and justifies de-escalation.
In essence, what’s needed is more than just a better deal; it needs a better story that allows both sides to retreat gracefully without appearing to have given in.