SmartworkS X YG Trade ure https://digital. 05 Trade agreements encourage countri

Question

SmartworkS X YG Trade ure https://digital. 05 Trade agreements encourage countries to reduce tariffs so that goods may flow across international boundaries with fewer restrictions. Using the following payoff matrix, determine the best policies for China and the United States in this example. Low tariffs High tariffs China gains $100 billion ss0 billion Low tariff U.S. gains 50 billion uS.gains $10 billiorn United States 10 billion $25 billion High tariffs u.S. gains $100 billion U.S. gains $25 billion 1st attempt Part 1 (2 points) The dominant strategy for the United States is to institute China's dominant strategy is to institute high tariffs low tariffs o@e®

Explanation / Answer

1. US dominant strategy = High tariff (since it is favored by US no matter what China chooses)

2. China's dominant strategy = High tariff (since it is favored by China no matter what US chooses)

3. Outcome: Both US and China choose High tariff getting payoff of $25 billion each

4. Mutually beneficial outcome: Both US and China choose Low tariff getting payoff of $50 billion each

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