Trade War -The Art ‘of War’ – Not ‘The Deal’

I have come across this very interesting short article by an American Professor who teaches negotiation!

He enlightened me as to the descriptive terms for the two types of bargaining being played out by perhaps the two largest geopolitical issues that intrinsically effect the stock markets.

I’m talking about trade wars and Brexit

The one and only President Trump’s ‘distributive‘ style versus the established political method of ‘integrative‘ bargaining – read on to get a good understanding of the differences.

At the eleventh hour, in what is an obvious last ditch pitch at the softest attempt of a soft Brexit from May, this paper will see no truck with the EU27, whom surely will never agree to the proposals. If there was any semblance of a probability that they would reach an agreement, then sterling would be bouncing a lot higher than it did yesterday- and it barely moved at all.

The current proposals don’t have backing from the hard line Remainers, and less so from the Leavers – and also fails to hit the spot for the wounded majority in between. This has to go down as one of the biggest political shambles in modern history!

Appetite for a another referendum, which could happen post the October expected end date of negotiations, is low, but as the cliff edge approaches I would expect the call to increase rather dramatically.

The two year period in between the referendum and now sees more eligible Remainer millennials enter the voting system, and probably a few less ‘Daily Mail reading Silver Surfing Leavers’

I believe the sentiment is that the public (and may be the rest of the world!) are more than fed up with this whole Brexit fiasco.

Here’s that article by  — David Honig, adjunct professor at Indiana University – Robert H. McKinney School of Law.

He explains why trade wars will get absolutely nowhere and highly critical of his President!

Trump, as most of us know, is the credited author of “The Art of the Deal,” a book that was actually ghost written by a man named Tony Schwartz, who was given access to Trump and wrote based upon his observations.

If you’ve read The Art of the Deal, or if you’ve followed Trump lately, you’ll know, even if you didn’t know the label, that he sees all dealmaking as what we call “distributive bargaining.”

Distributive bargaining always has a winner and a loser. It happens when there is a fixed quantity of something and two sides are fighting over how it gets distributed. Think of it as a pie and you’re fighting over who gets how many pieces. In Trump’s world, the bargaining was for a building, or for construction work, or subcontractors. He perceives a successful bargain as one in which there is a winner and a loser, so if he pays less than the seller wants, he wins. The more he saves the more he wins.

The other type of bargaining is called integrative bargaining. In integrative bargaining the two sides don’t have a complete conflict of interest, and it is possible to reach mutually beneficial agreements. Think of it, not a single pie to be divided by two hungry people, but as a baker and a caterer negotiating over how many pies will be baked at what prices, and the nature of their ongoing relationship after this one gig is over.

The problem with Trump is that he sees only distributive bargaining in an international world that requires integrative bargaining. He can raise tariffs, but so can other countries. He can’t demand they not respond. There is no defined end to the negotiation and there is no simple winner and loser. There are always more pies to be baked. Further, negotiations aren’t binary. China’s choices aren’t (a) buy soybeans from US farmers, or (b) don’t buy soybeans. They can also (c) buy soybeans from Russia, or Argentina, or Brazil, or Canada, etc. That completely strips the distributive bargainer of his power to win or lose, to control the negotiation.

One of the risks of distributive bargaining is bad will. In a one-time distributive bargain, e.g. negotiating with the cabinet maker in your casino about whether you’re going to pay his whole bill or demand a discount, you don’t have to worry about your ongoing credibility or the next deal. If you do that to the cabinet maker, you can bet he won’t agree to do the cabinets in your next casino, and you’re going to have to find another cabinet maker.

There isn’t another Canada. So when you approach international negotiation, in a world as complex as ours, with integrated economies and multiple buyers and sellers, you simply must approach them through integrative bargaining. If you attempt distributive bargaining, success is impossible. And we see that already.

Trump has raised tariffs on China. China responded, in addition to raising tariffs on US goods, by dropping all its soybean orders from the US and buying them from Russia. The effect is not only to cause tremendous harm to US farmers, but also to increase Russian revenue, making Russia less susceptible to sanctions and boycotts, increasing its economic and political power in the world, and reducing ours. Trump saw steel and aluminum and thought it would be an easy win, BECAUSE HE SAW ONLY STEEL AND ALUMINUM – HE SEES EVERY NEGOTIATION AS DISTRIBUTIVE. China saw it as integrative, and integrated Russia and its soybean purchase orders into a far more complex negotiation ecosystem.

Trump has the same weakness politically. For every winner there must be a loser. And that’s just not how politics works, not over the long run.
For people who study negotiations, this is incredibly basic stuff, negotiations 101, definitions you learn before you even start talking about styles and tactics. And here’s another huge problem for us.

Trump is utterly convinced that his experience in a closely held real estate company has prepared him to run a nation, and therefore he rejects the advice of people who spent entire careers studying the nuances of international negotiations and diplomacy. But the leaders on the other side of the table have not eschewed expertise, they have embraced it. And that means they look at Trump and, given his very limited tool chest and his blindly distributive understanding of negotiation, they know exactly what he is going to do and exactly how to respond to it.
From a professional negotiation point of view, Trump isn’t even bringing checkers to a chess match. He’s bringing a quarter that he insists of flipping for heads or tails, while everybody else is studying the chess board to decide whether its better to open with Najdorf or Grünfeld.”

If you’ve never read The Art of War it’s an ancient Chinese military treatise, attributed to Sun Tzu, he was a Chinese general, military strategist, writer, and philosopher who lived in the Eastern Zhou period of ancient China. It’s a great read  – in fact writing this reminds me I need to read it again!

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