Trade Liberalization and Trade Protection Based on Game Theory

Abstract

Under the background of economic globalization, economic and trade exchanges are increasingly close. While countries enjoy the dividends brought by the global economy, trade competition is also more intense. In order to protect their own economic and political interests, countries usually adopt the policies of trade liberalization or trade protection policy protectionism. The total economic volume of China and the United States is huge, so the trade frictions between the two countries will attract the attention of the world trade countries. The choice of trade policies between the two countries will also affect the economic level and economic and trade relations of both countries and even the development of the entire world economy. Therefore, from the perspective of game theory and international trade, this paper analyzes the choice of trade policy in world trade by calculating the Nash equilibrium in the choice of trade policy and the welfare changes caused by the implementation of tariffs. Through game theory analysis, the results show that trade protection and trade liberalization in world trade are both contradictory and coexist. In order to protect the development of their important industries, countries can adopt reasonable subsidy policies or protection policies to support them under the framework of WTO. However, countries should actively promote global economic governance and actively promote the development of multilateral trade and regional economy. It provides some ideas for the choice of trade policy in the context of trade war.