Question: Trade agreements encourage countries to curtail tariffs so that goods may flow across international boundaries without restrictions. Using the following payoff matrix, determine the best policies for China and the United States in this example.
a. What is the dominant strategy for the United States?
b. What is the dominant strategy for China?
c. What is the Nash equilibrium for these two countries?
d. Suppose that the United States and China enter into a trade agreement that simultaneously lowers trade barriers. Is this a good idea? Explain your response.