The United States claims that Canada subsidizes the production of softwood lumber and that imports of Canadian lumber damage the interests of U.S. producers. The United States has imposed a tariff on Canadian imports to counter the subsidy. Canada is thinking of retaliating by refusing to export water to California. Table 1 shows a payoff matrix for the game that the United States and Canada are playing.
Is this game like a prisoners' dilemma or different in some crucial way? Explain. Which country would benefit more from a free-trade agreement?
