The problem with game theory

Greetings, I'm Andy Browne, Editorial Director of the Bloomberg New Economy Forum. To handicap the outcome of U.S.-China trade negotiations, economists and market-watchers have turned to game theory. Which economy relies more on trade? (China, a key vulnerability.) Which political system can best withstand a protracted standoff? (Here, China’s authoritarian structure may confer an advantage.) Will U.S. President Donald Trump blink if the stock market sinks? (He’s been relatively unmoved by price swings so far.) And on and on. These calculations, however, obscure a much larger question: What is the game?

Nobody seems to know. Certainly not Trump, who upped the ante this week by starting to choke off the supply of U.S. components to Huawei Technologies Co., the avatar of China’s high-tech ambitions. That uncertainty could sink any remaining prospects for a trade agreement and, if it continues, could provoke a broader crisis in U.S.-China relations. Tensions are rising again in the South China Sea, where the U.S. Navy has been conducting “freedom of navigation” exercise around disputed reefs.