The U.S.-China trade war, according to game theory

Planet Money

NPR

Business, News

4.6 • 29.8K Ratings

🗓️ 30 May 2025

⏱️ 29 minutes

🔗️ Recording | iTunes | RSS

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Summary

Over the last few months U.S.-China trade relations have been pretty hard to make sense of – unless you look at what's happening through the lens of game theory. Game theory is all about how decisions are made, based not just on one side's options and payoffs, but on the choices and incentives of others.

So, are Donald Trump and Xi Jinping competing in a simple game of chicken? Or is the game more like the prisoner's dilemma? On today's show, we try to decide which of four possibilities might be the best model for this incredibly high-stakes game. And we take a look at who is playing well and who might need to adjust their strategy.

For more on the U.S.-China trade war:

- The 145% tariff already did its damage
- What happened to U.S. farmers during the last trade war
- What "Made in China" actually means

This show was hosted by Keith Romer and Amanda Aronczyk. It was produced by Sam Yellowhorse Kesler. It was edited by Jess Jiang, fact-checked by Sierra Juarez and engineered by Kwesi Lee with help from Robert Rodriguez and Cena Lofreddo. Additional production help from Sylvie Douglis. Alex Goldmark is Planet Money's executive producer.

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Transcript

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0:00.0	This is Planet Money from NPR.
0:05.6	Over the last few months, U.S.-China trade relations have been kind of bizarre.
0:11.0	Like, it is unclear what these two countries are even trying to accomplish.
0:14.8	There was President Donald Trump's big tariff announcement on April 2nd, then China retaliated, then Trump retaliated for that retaliation.
0:22.6	For a while, the U.S. put tariffs of at least 145% on Chinese goods coming into the U.S.
0:28.2	China then put 125% tariffs on U.S. goods.
0:32.2	The rhetoric from both sides got pretty heated.
0:35.9	Here's President Trump.
0:36.9	Our country and its taxpayers have been ripped off for more than 50 years, but it is not going
0:43.5	to happen anymore. It's not going to happen.
0:46.8	And in China, the Ministry of Foreign Affairs put out this almost like political campaign video.
0:55.9	The narrator is saying the U.S. has stirred up a global tariff storm.
1:00.8	You see lightning at a protest march.
1:03.5	And then he's like,
1:06.7	history has proven, compromise won't earn you mercy,
1:10.5	kneeling only invites more bullying.
1:13.5	No one was going to back down.
1:16.6	Then, earlier this month, everyone backed down.
1:20.8	And it was announced that tariffs were lowered to 30% on Chinese goods and 10% on American goods.
1:27.4	And then this week, two separate courts ruled that actually maybe a lot of the new U.S. 30% on Chinese goods and 10% on American goods.
1:31.8	And then this week, two separate courts ruled that actually maybe a lot of the new U.S. tariffs are illegal, but the White House has appealed.
1:35.9	It's very, it's disorienting, but it's also fascinating.
	...

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