Three possible outcomes of the China US trade war 1、 Nash equilibrium with two losses When two countries adopt the "Nash tariff strategy" (i.e. setting their own optimal tariffs based on each other's tariff levels) It will lead to a trade war where high tariffs are imposed on each other. This game will lead to: 1. Trade benefits are exhausted by tariff policies 2. The widening gap in actual income 3. International trade efficiency is lower than domestic trade. A typical case is the 'prisoner's dilemma', where mutual distrust leads to a loss of common interests for both parties. 2、 Realize a win-win situation through negotiation When a trade war threatens fundamental interests, both sides will be forced to turn to trade negotiations. Negotiations may reach: 1 Tariff reduction agreement; 2. Deepen international division of labor and cooperation; 3. Establish a rule-based trading system. Under this equilibrium, the trade cake can expand, and developed countries and developing countries share the growth dividends. A typical case is the multilateral negotiation mechanism under the WTO framework. 3、 Worst case regression outcome If the confrontation escalates and there is a lack of effective negotiations, there may be: 1 The scale of international trade continues to shrink; 2. The industrial division of labor chain is broken; 3. The economic system is retreating towards self-sufficiency. Yang Xiaokai specifically warned that if developing countries adhere to the strategy of "harming others for their own benefit" (such as implicit subsidies and industrial protection), it may trigger the collapse of the global trading system and reproduce the pre modern economic form. Core logical chain: Differences in division of labor (complete division of labor in developed countries vs. dual economy in developing countries) → Motivation for tariff game (competition for the right to distribute trade benefits) → Trade war under Nash equilibrium → Forced negotiation or collapse. Free trade cannot be achieved naturally and must be achieved through crisis driven mechanism design (negotiations under trade war pressure), which overturns the optimistic assumptions of traditional international trade theory.