Economics and finance, Trade and industry | Asia, East Asia, The World

16 May 2018

On this week’s special Policy Forum Pod Extra, Darren Lim takes a look at how domestic politics are dragging the US and China into an escalating trade war.

What can two-level game theory tell us about the ongoing trade conflict between the US and China? On this week’s special Policy Forum Pod Extra, Darren Lim discusses the high-stakes contest being played out between the world’s two largest economies.

Dr Darren Lim is a Lecturer in International Relations at the Australian National University. His research primarily focuses on economic statecraft, the foundations of interdependence, and the mechanisms through which trade and investment links can affect states’ security and foreign policies.

When two countries negotiate across a bargaining table, they have to play two simultaneous games: one at the international level, and one to ensure that any deal reached will be acceptable for a domestic audience back home, Lim explains.

“When we think about the United States and China negotiating issues of trade investment and trade deficits, we have to think about the winners and losers at home, both for Donald Trump and his political base, as well as President Xi Jinping’s domestic political issues.

“On the one hand, [Trump] was very clear on the campaign trail that the United States’ trade deficit with China was too large, and reflected the US losing in terms of international trade with China. So he has one headline goal, which is to simply reduce, by about two hundred billion dollars, the level of the trade deficit. If that happens, according to President Trump, that’s a win.

“On the Chinese side, President Xi’s political strength comes from the perception that he is a strong leader, and that he is ushering in a new era of Chinese leadership and Chinese power in the world. He cannot be seen to be making any concessions because he is being coerced or bullied or otherwise pushed into doing so by the US president.”

Acknowledging this dynamic can help us understand why each side is making the demands it is making, and also what the red lines in any escalating trade conflict are likely to be. Unfortunately, it’s a dynamic that also poses considerable risks for each side.

“An increasingly tense relationship based on money and economics can very easily spill over into guns and bombs and things that are even scarier.”

Listen to the full podcast to hear more about the ongoing US-China trade conflict, how the conflict might be resolved, and what might happen if it’s not.

Darren Lim was in conversation with Sean Shaw. This episode of the pod was produced and edited by Sean Shaw. This blog post was written by Nicky Lovegrove.

Policy Forum Pod is available on SpotifyiTunesStitcher, and wherever you get your podcasts. Got feedback for us on this pod? Tweet us @APPSPolicyForum or find us on Facebook.

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