Chinese Apps ban — Possible response from China on trade with India, A Game theory perspective
A Point of view on China’s current response to app ban. Changing the objectives and assumptions may also lead to a different equilibrium. This model can be used for simulating China’s potential moves & strategizing appropriate response.
- India has 2 strategies — 1) Continue to trade with China or 2) “Do it yourself” in lines with self-reliance (Atamanirbhar) strategy
- China has two strategies 1) Retaliate ban on apps with trade tariffs or bans, or 2) Continue to trade with India
The ”Outcome Matrix” corresponding will be as in Figure 1
For Game matrix:
- Assume India’s main objective is towards self-reliance and China’s is to trade more with India.
- Assume China cannot do a blanket ban on Indian goods. Then India’s preferred outcome is Outcome 3 & 4 compared to Outcomes 1 & 2 — as the decision to Trade with China is counter to the being self-reliant (Do it yourself) strategy of India. Therefore for India, Outcome 3 & 4> Outcome 2 & 1. Suppose India prefers Outcome 4 to Outcome 3 and Outcome 2 to Outcome 1. The preference orders with these assumptions for India are: Outcome 4> Outcome 3> Outcome 2 > Outcome 1 .
- China on the other hand prefers Outcome 1 & 2 compared to Outcome 3 & 4 (in lines with its main objective of trading with India). Therefore its preference is Outcome 1 & 2>Outcome 3 & 4. Now suppose China prefers outcome 2 to outcome 1 (in lines with doing more trade) and Outcome 4 to Outcome 3 fearing no major impact to India because of its retaliation. The preference orders with these assumption for China are: Outcome 2>Outcome 1> Outcome 4> Outcome 3.
- Considering Ordinal level preference a score of 4 for best 1 for worst. The Game Matrix is as shown in Figure 2. The first number in each cell denotes India’s preference for that outcome and the 2nd number denotes China’s.
Now, from the game matrix we can conclude that for China irrespective of India’s strategy the dominant strategy is to Continue to Trade with India and for India the Dominant Strategy is to follow Do it Yourself — the self reliant strategy irrespective of China’s strategy. Hence the equilibrium is “Do it yourself” and “Continue trade with India” as each player in this game strives to obtain highest score.
This simplistic model, explains why China is only engaged in vocal displeasure than with any retaliatory trade restrictions, in response to the app ban.
Inspiration Guner, S. (2012). A Short Note on the Use of Game Theory