August 31, 2019

“Sorry, That’s The Way I Negotiate”—Trump.

by Hal Gershowitz

Comments Below

“It’s done very well for me over the years,” the President continued, justifying his tariff assault on China and other nations at the G7 meeting in France last week. Well, no argument or fact-checker Pinocchio’s there. He is conducting the nation’s foreign affairs and trade policy essentially the way he negotiated deals as a private businessman. When he believes he holds the high cards he takes no prisoners, figuratively speaking, of course. For example, when he had a dispute with contractors who had completed work for him, he held the high cards. He had the product of the contractor’s work as well as the remaining money he owed the contractor. That’s a pretty strong position to be in, especially given US contract law, in which the claimant is entitled to no more than the contracted amount. That’s a huge inducement for a contractor to settle for less than the contracted amount rather than bear the high cost of litigation to pursue the full contract amount.

We won’t make a judgment about the hundreds of suits and liens contractors have, in the past, levied against Trump, the businessman, for non-payment of money they claim was owed to them.  In fairness, contractor suits and liens are pretty common in the construction business. Such suits are common because sometimes contracted work is not completed satisfactorily and a builder will withhold final payment until work is completed as specified. There is nothing wrong with that. As everyone in the building business knows, however, many suppliers or sub-contractors will settle for less than the full amount owed when there is a dispute over payment because of the expense of litigation. In other words, the builder holds the high cards and some builders can play those cards ruthlessly. An invoice often becomes an invitation to negotiate.

Likewise, in our trade dispute with China, Trump clearly believed (or, perhaps, still believes) he had (or has) the winning hand with all the high cards. That’s because American consumers buy so much more from Chinese producers than American producers sell to Chinese consumers. In this trade war between the United States and China, it would appear at first blush that the United States can hurt China more than China can hurt the United States because we buy so much more from them than they buy from us.

Why should our trade deficit with China surprise anyone? American consumers, as a group, are much wealthier and want more, much more, of what China produces and sells than Chinese consumers want of what America produces and sells. That’s why we have a negative balance of trade (in manufactured goods) with China. Believe it or not, it’s really that simple. So, because we’re the bigger buyer, it stands to reason that we have much more leverage in a trade dispute than China does. That’s why Candidate Trump and, then, President Trump naively boasted that trade wars are good and easy to win.

But in the final analysis, it isn’t a matter of who can inflict the most pain. It is, rather, a matter of who can stand the pain the longest. President Trump is facing an election in a year-and-a-half, and if his trade war is still raging he will lose support that he simply can’t afford to lose. Surely, he must have calculated that this trade war would have been decided in America’s favor well before the 2020 election and that his big tariff victory would be a big plus in the election. It’s probably not going to work out that way, and, frankly, we can’t figure out how President Trump or anyone else could have assumed otherwise. President Xi Jinping, on the other hand, has no election staring him in the face. Time is on his side.

The Chinese are a stoic people who have known only authoritarian governments for their entire history. Hardship, in spite of their rapidly improving standard of living, is all but hard wired into their DNA. If the trade war continues the odds are that the Chinese people will probably rally around President Xi. President Trump cannot expect the American electorate to rally around him if the trade war continues. His tariffs are hurting far too many people, some, such as the nation’s farmers, severely.  Also, if the trade war continues, the American electorate will hear and see recordings of a braggadocio President Trump assuring people how easy it would be to win a trade war with China.

There is no easy way out of this tariff war President Trump has unleashed. President Trump will find it very difficult, if not impossible, to back off. He has “to win.” This is, after all, his Art of the Deal in real-time. It is being played out for all to see.  He is either an artful dealmaker or a political bully being faced down on the world stage. Ironically, there is relatively little the Chinese can do. They have been cracking down on outright intellectual-property theft, but they are not going to be bludgeoned, to suit Donald Trump, into changing their joint-venture laws regarding sharing of intellectual property among joint-venture partners. They can agree to buy some additional American soybeans, but that will not be seen as a victory for Donald Trump. He has to prove that trade wars are good and easy to win. Selling more beans just won’t do it.

Sorry, but that’s the way he negotiates.

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11 responses to ““Sorry, That’s The Way I Negotiate”—Trump.”

  1. Roberta Conner says:

    Once again your essay severely criticizes President Trump’s behavior without offering a single alternative strategy to curb China’s continued unfair and illegal trade practices.

    We can’t do anything – the Chinese are too strong and too stoic.

    Thankfully, most Americans refuse to embrace such a defeatist attitude and are supporting the President’s efforts to rectify a negative situation that past administrations – Democrat and Republican – have allowed to continue for far too long.

    • Reply to Ms. Conner: While our essay was not about trade policy, but rather about the manner in which the President and his staff apparently negotiate, we’ve responded to this criticism from Ms. Conner before. Specifically, we would have been better served to have embraced the Trans-Pacific Partnership and forged a strong trading block to join the United States in confronting China. That, of course, would have required real leadership and statesmanship. Reverting, instead, to the failed tariff policies of the 1930’s demonstrates, in our view, a paucity of leadership. That’s the real defeatist attitude that drives this Administration.

  2. Ben Donenberg says:

    I think we are pretty good at protecting military intellectual properties and secrets. Just look at those hi-rez photos of the Iranian launch sight!

    Maybe we already have everything we need to protect commercial intellectual property from poachers and we just have not chosen not to deploy our resources to protect and serve America’s commercial intellectual properties and secrets?

    China flouts international laws.

    But, we already successfully task ourselves to protect our military intellectual property against thievery that does not rely upon the mutual cooperation of the thief.

    We probably have what we need to do the same for our international commercial intellectual property forces, that needn’t rely on self-destructive tariffs.

  3. Mike says:

    With all due respect Ben, I think your comments overlook some key points.

    First, it isn’t just the theft of intellectual property on the table. As the Chairman of FedEx Fred Smith has addresses, it is China’s unwillingness to abide by the rules of the WTO that is a major concern. They impose policies on companies who want access to their markets.

    Recently I interviewed economist Gary Shilling about the Trade War. As he noted, the Chinese’s willingness to violate agreements and their determination to compete under their rules had to be addressed.

    Bush, Clinton, Bush and Obama were willing to kick the can down the road. Right or wrong, Trump believed it had to be addressed. The manner in which he has handled it is certainly open to debate. And the fallout from this War is especially acute in the agricultural area.

    The Chinese are smart and are using their tariffs to affect voters in key swing states. But now that we are here, we have to see it through or capitulate. Not an easy call but hopefully both countries come to their senses.

  4. Perry Green says:

    I believe it is not about who holds the best cards, but the way
    they are played. Your statement is so correct “Trump is up for
    election and President Xi is never up for election. Another
    term of Trump will ensure a win for America.

  5. It’s all too easy to criticize the President and his negotiating tactics, without putting the situation into sharper focus. It’s widely acknowledged that prior attempts to bring China into the world trade community through diplomatic engagement proved largely unsuccessful due to factors such as China’s unwillingness to uphold previously negotiated agreements, and probably more importantly due to Chinese president Xi Jinping’s new nationalistic orientation implicit in his Belt and Road initiatives. China’s expansion into the South China Sea, their attempts to suppress the freedoms of the citizens of Hong Kong, their crackdown on the minority Muslim Uyghur population, their support of N.Korean dictator Kim Jong-un, and their industrial espionage all point in this direction. Trump’s blunt diplomacy is showing some effects on the Chinese economy with their PMI demonstrating a drop in their domestic demand as well as a need to devalue their currency. The track record of soothsayers who think they can foresee the inner thoughts and motivations of another human have a dismal track record and it’s littered with the likes of the Wizard of Oz. So much for the folly of trying to divine and judge Trump’s strategy. Have some faith, grit, and determination to support Trump for what is in the best long-term interests of our country. Some amelioration of their trading tactics underpinned by good enforcement would be construed by many as a win for us.

  6. James Fisher says:

    Mr. Silverstein’s remarkable insights demonstrate great geopolitical wisdom and that rare – but wonderful – trait of a traditionally American “can do” spirit. Alas, that attitude is routinely demeaned by unwise pundits and the MSM in general but it is very refreshing to see it occasionally blossom. Thank you Sir.

  7. Dan Kite says:

    I believe Perry has a real point. The Chinese communist government is able to play long ball. We do not even know what that means.

    I am not so sure, however, that Trump’s time is so short. I think taking on China is wildly popular among the base that elected him. If the polls are to be believed, even the farmers are not abandoning him and they have been hit hard.

    I think the most logical and most likely next step in this trade dispute will be our allies joining us in challenging China. The Europeans, Japanese, and other allies may put pressure on the Chinese’s position within the WTO and place tariffs of their own on. The communist Chinese police in Hong Kong may mistakenly provide the nudge they need.

    The Chinese have been stealing from us on every level for too many years. Intellectual property, outright cyber warfare, and currency manipulation have got to stop. I am glad to see our companies shifting substantial manufacturing capacity to other countries. We are too dependent on China for the manufacture of American goods shipped around the world. Apple has almost 100% of production there.
    Why not shift capacity to Thailand, Vietnam, the US, and other countries more friendly to us. There are too many companies totally dependent on China. Even Boeing is producing more and more planes there.

    If the President is simply looking at the trade deficit as his measuring stick for success, he is mistaken. Either way, he has stumbled into the most important issue facing our country in this century. Worse case, he is on the right side for the wrong reason.

    We do hold more cards today than we are likely to have for some time. The economy we have had has given us the luxury of fighting this trade. We have not been in this position in many years. We all know that tariffs are not good for an economy. They might, however, be in our best interest for a period of time.

    • Response to Dan Kite: Dan Kite observes, “We all know that tariffs are not good for an economy. They might, however, be in our best interest for a time.” Well, not likely. Tariffs are not good for an economy because as the tit-for-tat continues and prices to the consumer continue to rise, demand always diminishes and as demand diminishes economies contract. That’s the lesson tariff wars teach. Dan also observes that nearly all of Apple’s production is done in China. Well, that’s not quite accurate. Apple’s assembly is completed in China from parts manufactured all over the world, including the United States. It is the assembly of product that earns the “made in” label. Dan also observes that the nation’s farmers are still supportive of President Trump in spite of the tariffs that have hit them hard. That’s true, but that support has come at a price; about $30 billion in federal aid to be exact. We actually agree with Dan that President Trump’s re-election prospects look pretty good. That’s because of the Democrats absurd swoon with socialism, which we believe will be a real loser for them. But the President will have his work cut out for him. He has to carry Pennsylvania, Michigan, Wisconsin, and Florida to win again in the Electoral College. He carried those states by less than one percent of the vote in 2016. If his tariff wars result in a flagging economy, he may well have thrown away his re-election.

  8. Steve Hardy says:

    I am sure that if there were economic reasons for Apple and Boeing to shift production from China to Viet Nam, Thailand, and other countries, they would do so. No one forces companies to deal with the Chinese. I am surprised at how many “small government” conservatives want the government to determine who we can do business with.

  9. Dan Kite says:

    Hal,
    I can not help but feel that I did not make myself clear enough. Let me try again.
    1) China is not our friend. Period. North Korea, currency manipulation etc. etc. etc.
    2) The economy will be stronger in the long run if China decides to enter the world community and trade fairly.
    3) Apple seems incapable of assembling the parts made around the world anywhere else. If just assembly, should not be so hard.

    I want free trade with China. I also want free and fair trade. Please suggest a way to accomplish that. That is what is missing here. That is what we need.

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