Negotiation: Mutual Destruction Is Not Assured
“Negotiation in the classic diplomatic sense assumes parties more anxious to agree than to disagree.” – Secretary of State Dean Acheson, co-architect of the Marshall Plan
Even if you’re not negotiating trade or foreign policy, that line provides an important lesson. Whether it’s a teenager’s curfew, reworking a long-standing sales contract, or designing a post-war economic treaty, we’re always better off if we remember that the party sitting across the table is self-interested. Just like us, they want discussions to eventually end, and to end with both parties still working together.
Agreement is possible. Mutual destruction is not assured.
If you engage. If you recognize a negotiation when you’re in one, focus on what you truly want (and on what your opponent wants), and keep a cool head, a better outcome for all is achievable.
The value of engagement is illustrated by recent negotiations between the Trump administration and Chinese officials over the Section 232 steel and aluminum tariffs, and other penalties.
When President Donald Trump announced these tariffs, most media commentators mistook them for bellicosity and disengagement. The president’s own Twitter habits didn’t help matters, of course, but what’s clearly going on is “diplomacy in the classic sense.” President Trump and Chinese President Xi Jinping both are more anxious to agree than to disagree.
Past administrations, both Republican and Democratic, failed to engage. While American officials did put China on warning and watch lists, their Chinese counterparts saw these efforts for what they were—empty tactics. And, as those who went to business school might remember, a tactic perceived is no tactic. China wasn’t compelled to talk because, as Herb Cohen would have said, the U.S.’s handgun had no cartridges.
With the steel and aluminum tariffs, and Section 301 penalties on $50 billion in Chinese products, the U.S. government finally is serious. While the Trump administration’s Section 232 tariffs are far from perfect—they don’t protect downstream companies and they still could be applied to allies, like Canada and Mexico, who aren’t guilty of unfair trade—they’ve driven the Chinese government to negotiate.
Why? Because China has a lot to lose from the tariffs as well. As an April 17 Economist article said, though China’s exports to the United States are just a fraction of its total economy, “a trade war … could wreak havoc on sentiment and supply chains.” We know, and of course Chinese officials also know, that the country depends the United States for some important products. Benson Ho, who runs an LED plant in south China, saidhalf the chips he uses are from the United States because the Chinese ones are poorly made. Ho told Reutersthe impact of a trade war would “be very great.”
Additionally, as the Hinrich Foundation’s Michael Enright reported last year, “A major part of China’s economic development has involved” U.S. companies investing directly in China. China’s National Bureau of Statistics says total U.S. Foreign Direct Investment into China through 2015 was $78 billion. The Rhodium Group put the number at nearly three times that, $228 billion.
Chinese businesspeople are concerned. In a Reuters survey of 135 Chinese exporters, 65 percent expressed worries about a trade war. But Reutersalso found three-quarters of Chinese exporters actually don’t expect a “full-blown” trade war. The dependency outlined above is probably the reason. Chinese businesspeople also understand negotiating principles. They know their government has a stake in finding balance. China would certainly be better off with the status quo, but once engaged in a negotiation, its policymakers are not going to just end their relationship with the United States before trying to make things work first.
So far, it looks like talks are moving in the right direction. On April 17, the Chinese government announced it will ease rules that mandate foreign automakers need a local partner in order to sell in the country. Chinese President Xi has promised greater access for foreign companies to China’s financial and manufacturing sectors, and the country’s top economic official, Vice Premier Liu He, was in Washington, D.C. for high-level talks from May 15-19.
President Trump’s new chief economic adviser, Larry Kudlow, believes Xi is sincere. The Wall Street Journal explained Kudlow thinks, even though Xi “has made similar conciliatory overtures in the past … ‘he never said them in this context’ of increasing trade tensions.”
Mr. Kudlow is a staunch free trader. He’s spent most of his career arguing against the type of policies his boss has implemented over the last few months. The fact that he’s bullish speaks volumes. He thinks pressure will change behavior.
As businesspeople, we know it usually does.
The Rolling Stones famously said, “You can’t always get what you want.” That’s true, but if you come to the table with something substantial, you might finally get something you need.