Can APEC Bridge the Divide? A Game Theory Approach to US-China Cooperation

Euamporn Phijaisanit

Asian Journal of Applied Economics/ Applied Economics Journal, 2024, vol. 31, issue 2, 65-76

Abstract: The escalating US-China rivalry threatens to impede economic integration within the Asia-Pacific Economic Cooperation (APEC) forum. This paper departs from the existing literature by analyzing specific actions of both countries that exemplify a focus on short-term gains. It argues that by understanding the dominance of short-run gains in current US-China actions, a framework that emphasizes long-term cooperation becomes particularly relevant. Employing game theory, the paper examines APEC's future prospects. The paper analyzes potential cooperation and conflict scenarios based on economic incentives and strategic considerations. While the current rivalry resembles a Prisoner's Dilemma, the paper explores alternative game structures, namely; Repeated Games and Supergames, that can incentivize cooperation on shared economic objectives. The analysis demonstrates that long-term benefits from cooperation can outweigh short-term temptations to defect, particularly if APEC institutions foster trust and transparency. Ultimately, the analysis highlights the critical role of a strengthened APEC in promoting a stable and cooperative equilibrium, thereby fostering long-term economic prosperity for the entire Asia-Pacific region.

Keywords: APEC; US-China rivalry; game theory; prisoners dilemma; international cooperation (search for similar items in EconPapers)
JEL-codes: C73 F15 F53 F55 (search for similar items in EconPapers)
Date: 2024
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