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Figure 9-F Prior to the Year 2000, the United States Considered Renewal

Question 188

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Figure 9-F
Prior to the year 2000, the United States considered renewal of Most Favored Nation (MFN) trading status with China annually (Most Favored Nation trading status is now called Normal Trade Relations) . Historically, legislators made threats of not renewing MFN status because of alleged human rights abuses in China. The nonrenewable of MFN trading status would likely have triggered retaliatory measures by China. The game below reflects the potential economic gains from trade in a scenario in which China chooses whether to impose trade sanctions against U. S. firms and the United States chooses whether to renew MFN status with China.
Figure 9-F Prior to the year 2000, the United States considered renewal of Most Favored Nation (MFN) trading status with China annually (Most Favored Nation trading status is now called Normal Trade Relations) . Historically, legislators made threats of not renewing MFN status because of alleged human rights abuses in China. The nonrenewable of MFN trading status would likely have triggered retaliatory measures by China. The game below reflects the potential economic gains from trade in a scenario in which China chooses whether to impose trade sanctions against U. S. firms and the United States chooses whether to renew MFN status with China. -Refer to Figure 9-F.Assume that trade negotiators meet to discuss trade policy between the United States and China.If neither party to the negotiation is able to trust the other party, then: A) it is rational for each to follow their dominant strategy. B) each should assume that the other will choose a strategy that optimizes the combined total value of the trade relationship. C) the Nash equilibrium will provide the largest possible gains to each party. D) Chinese negotiators should assume that United States negotiators will implement a policy that is in the mutual best interest of both countries.
-Refer to Figure 9-F.Assume that trade negotiators meet to discuss trade policy between the United States and China.If neither party to the negotiation is able to trust the other party, then:


A) it is rational for each to follow their dominant strategy.
B) each should assume that the other will choose a strategy that optimizes the combined total value of the trade relationship.
C) the Nash equilibrium will provide the largest possible gains to each party.
D) Chinese negotiators should assume that United States negotiators will implement a policy that is in the mutual best interest of both countries.

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