Economy · August 5, 2022

The Grumpy Economist: Game Theory in China

In recent Goodfellows, we wondered how China would respond to Nancy Pelosi’s visit.

In this context, news has just arrived, announcing answers we hadn’t thought of: China is giving the US a big middle finger on climate. The announcement, by the Farnesina, is short and clear:

Regardless of China’s strong opposition and serious demonstrations, US House of Representatives Speaker Nancy Pelosi visited the Chinese region of Taiwan. On August 5, the Ministry of Foreign Affairs announced the following countermeasures in response:

1. Cancellation of the speech of the theater commanders between China and the United States.

2. Cancellation of the coordination talks on defense policy between China and the United States (DPCT).

3. Cancellation of meetings of the China-US Military Maritime Advisory Agreement (MMCA).

4.Suspension of China-US cooperation on the repatriation of illegal immigrants.

5.Suspension of China-US cooperation on legal aid in criminal matters.

6.Suspension of China-US cooperation against transnational crimes.

7. Suspension of China-US cooperation against drug trafficking.

8. Suspension of China-US talks on climate change.

My emphasis. Insert the knife at the end. (The others are interesting too.)

What does this mean? If you can stay awake, you can read the State Department’s post-Glasgow announcement on US-China climate cooperation,

C. China will gradually reduce coal consumption during the 15th Five Year Plan and will do everything possible to accelerate this work.

So much for that. Climate and CO2 emissions come down to one thing: how China, India and other developing countries manage the large increases in energy use they need to grow. The US and Europe may decide to de-finance fossil fuels, ban fracking, shut down or regulate nuclear power to death, freeze in darkness and degrowth, or play with hundreds of billions of dollars in green tones, but China is no longer. If you think there is economic competition with China, you have just learned a lot about how it will turn out.

Other funny articles in the State Department report,

The two sides intend to work together to support the elimination of global illegal deforestation by effectively enforcing their respective laws on prohibiting illegal imports.

Not anymore.

Both countries recognize the importance of the commitment made by developed countries to the goal of jointly mobilizing $ 100 billion annually by 2020 and annually until 2025 to meet the needs of developing countries, in the context significant mitigation and transparency actions on implementation, and underline the importance of achieving this goal as soon as possible.

Don’t you like “mobilizing” money? Interestingly, the United States encouraged Chinese “belt and road” initiatives in developing countries.

In the larger debate, as an economist, I always look at self-interest first. What would China be like choose to answer? After all, he might just ignore the whole thing. An event like this gives an actor the chance to break commitments in a long-running game, signal a future state, or change the state to their advantage. True to form, China first launched some missiles and launched some military exercises around Taiwan. And we can see what China thinks its self-interest is here.

A colleague from the email thread who pointed this out, who is opposed to aggressive climate policies, commented ironically “All of you who thought that nothing good could come from Pelosi’s visit to Taiwan are wrong.” Well, from a perspective!