The U.S. and China Play a Game With No Winners
The latest trade-war developments have much in common with a key scene in the James Dean classic “Rebel Without a Cause.” Also, value stocks and U.S. exceptionalism.
Neither the U.S. nor China are destined to win the trade war.
Photographer: Bloomberg
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It hasn’t been a great few weeks for game theory — the economic discipline of predicting behavior in complicated situations by building complex model games in which the competitors have different objectives. A month ago, theoreticians held that both the U.S. and China had an overarching interest in coming to some kind of a face-saving deal. They both had simply too much to lose to risk an escalation. Markets were priced on this assumption.