Article http://dx.doi.org/10.26855/jamc.2021.06.003

Modeling the US-China Trade Conflict: A Utility Theory Approach


Yuhan Zhang1, Cheng Chang2,*

1Berkeley APEC Study Center, UC Berkeley, CA, USA. 

2School of Liberal Arts, Mercy College, NY, USA.

*Corresponding author: Cheng Chang

Published: May 13,2021


This paper models the US-China trade conflict initiated in 2018 and attempts to analyze the (optimal) strategic choices of the United States and China. In contrast to the existing literature on the topic, we employ the expected utility theory and examine the conflict mathematically. In both perfect information and incomplete information games, we show that expected net gains diminish as the utility of winning increases because of the costs incurred during the struggle. We find that the best response function exists for China but not for the US during the conflict. The results of our models indicate that the less the US pressures China to change its existing trade practices, the higher the US expected net gains. China’s best choice is to maintain the status quo, and any further aggression in its policy and behavior, such as artificially adjust exchange rates and slash imports from the US, will aggravate the situation. The theoretical framework designed in this paper can be also used to examine the bilateral technological frictions.


[1] Amiti, M., S. Redding, and D. Weinstein. (2019). The Impact of the 2018 Tariffs on Prices and Welfare. Journal of Economic Perspective, 33(4), 187-210. https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.33.4.187.

[2] Itakura, K. (2019). Evaluating the Impact of the US-China Trade War. Asian Economic Policy Review, 15(1), 77-93. https://doi.org/10.1111/aepr.12286.

[3] Lawrence, R. Z. (2018). Can the Trading System Survive US-China Trade Friction? China & World Economy, 26(5), 62-82. https://doi.org/10.1111/cwe.12256.

[4] Zhang, Y. (2018). The US-China Trade War: A Political and Economic Analysis. Indian Journal of Asian Affairs, 31(1/2), 53-74. www.jstor.org/stable/26608823. 

[5] Chen, A. W., Chen, J., and Dondeti, V. R. (2019). The US-China Trade War: Dominance of Trade or Technology? Applied Economics Letters, 27(11). https://doi.org/10.1080/13504851.2019.1646860 .

[6] Yin, J. and Hamilton, M. (2018). The Conundrum of US-China Trade Relations through Game Theory Modeling. Journal of Applied Business and Economics, 20(8), 133-150. https://doi.org/10.33423/jabe.v20i8.217.

[7] Jiang, Z., Gong, X., and Cheng, H. (2020). Research on Trading Friction between China and the US from Game Theory Perspective. American Journal of Industrial and Business Management, 10(1), 19-29. https://www.scirp.org/html/2-2121641_97611.htm.

[8] Cao, J. (2013). Competition of Power and Determination. Quarterly Journal of International Politics, 2, 1-34. http://www.imir.tsinghua.edu.cn/publish/iis/7238/20130506152348419454730/1.pdf.

How to cite this paper

Modeling the US-China Trade Conflict: A Utility Theory Approach

How to cite this paper: Yuhan Zhang, Cheng Chang. (2021) Modeling the US-China Trade Conflict: A Utility Theory Approach. Journal of Applied Mathematics and Computation5(2), 84-88.

DOI: http://dx.doi.org/10.26855/jamc.2021.06.003