Suppose US manufacturers, is considering entering the Chinese market which is dominated by its principal rival, say Chinese producers.

Clearly, Chinese decision to enter or not will be judged on the potential profitability of such a move.

This, in turn, depends upon the way US manufacturers will react

If Chinese manufacturers reacts aggressively by increasing the existing Tariff rate, then an entry by US manufacturers will result to a loss of $ 5 billion for American's Exporters and a loss of $2.8 billion for Chinese Manufacturers. Or if US manufacturers does the same, pay off will be the same as mentioned above. On the other hand, Chinese Manufacturers accommodates (Law Tariff Rate) American's exporter's entry, then both USA and Chines Manufacturers (With same strategy) will be making profits of $ 7 billion each, respectively. Finally, if both Exporter follow higher Tariff Strategies to enter the market at all, then both will be making additional $ 3 billion each respectively.

Required:

a) What would you do as the Government Official if you were make a decision for US Manufactures?

b) what would you do as the government official if you were to make a decision for Chinese Manufacturers?

c) Construct and discuss the Zero Sum outcome of the all possible Strategies?