8. Trade agreements encourage countries to curtail tariffs (taxes on imports) so that goods may flow across international boundaries without restrictions. Using the following payoff matrix, determine the best policies for China and the United States.

a. What is the dominant strategy for the United States?

b. What is the dominant strategy for China?

c. What is the Nash equilibrium for these two countries?

d. Suppose that the United States and China enter into a trade agreement that simultaneously lowers trade barriers in both countries. Is this agreement a good idea? Explain your response.

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Low tariffs Low tariffs China China gains $50 billion United States U.S. gains $50 billion China gains $10 billion High tariffs U.S. gains $100 billion High tariffs China gains $100 billion U.S. gains $10 billion China gains $25 billion U.S. gains $25 billion