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The Art of the Trade Deal – The Right Engle

President Donald Trump, author of The Art of the Deal and self-described master negotiator, has a lot to learn about trade. After decades spent in business, the President has to come to terms with the fact that trade negotiation, and foreign policy in general, is far more complicated than he imagined.

Boosters for Trump may bristle at this criticism, as they did when I mentioned it with regard to his lackluster performance as lead negotiator for Obamacare repeal. But even they have to realize that both America and the world will benefit from Trump abandoning some of his old habits and adapting to the realities of geopolitics.

Here are the six things the President needs to understand:

1. A trade deal isn’t a real estate transaction

This may seem obvious, but apparently not, given the way Trump and several members of his inner circle talk about trade deals and other international negotiations.

In any real estate deal, no matter how complex, there is always another potential dancing partner. So what if Morgan Stanley balks at the debt structure of a development; you can just head across the street to Goldman Sachs or Deutsche Bank. A contractor refuses a proposed budget? Hire a more flexible contractor.

That sort of thinking is common across the business world. When there are a multitude of competing businesses, there is always someone you can cut a deal with, and the consequences of a failed negotiation are finite. That is not the case in the realm of foreign policy.

There is only one China, there’s only one Russia, only one EU.

If China refuses to budge on a deal, you can’t just get up and find a different trading partner. The nature of inter-state negotiation, especially between regional powers, is fundamentally different from any business transaction. Ultimately, there is no way to find a different partner. Countries are what they are. That means a different kind of deal-making than Trump is familiar with.

He has always dealt in a world where hard bargaining is backed up by the potential of finding an alternative partner. When it comes to trade in Asia, there is only China. When the issue at hand is security in Eastern Europe, he can’t pick a new partner when Russia starts to act obstreperously. Confrontation can close off avenues of compromise and progress. Tactics that might cow a business opponent will not find ready application against a sovereign state.

The point is that nation-states dominate the sphere of political negotiation, and thus, the world of international trade policy. If the President wants to succeed in cutting new and better deals for America, he has to come to terms with that fact. Trade requires compromise, and if we want to see lowered barriers and freer markets, that requires a trade policy that is conciliatory, not confrontational. For Trump, it seems, everything is about cutting a deal in a world of zero-sum transactions. That may be true at times in real estate, but most of the time commerce benefits all parties. This is a fundamental tenet of capitalism.

2. A transactional attitude will only get you so far

Trump has to learn that a purely transactional approach will not suffice in the world of trade policy. There are other matters at stake, such as national pride, which dwarfs the egos of even the most self-inflated Wall Street “masters of the universe.” Wars are fought over matters of pride. The President ought to learn that, sooner rather than later.

Trump needs to understand that trade isn’t just about money or economics, and that the people at the other end of the table are usually beholden to an electorate that does not like to see its leaders pushed around. What might look to the casual American observer like a show of strength by the Trump administration on a particular issue could prove costly down the line, as voters in other countries bristle at being pushed around by an orange loudmouth.

Trump’s transactional attitude toward politics may go a ways toward explaining why he is more comfortable talking to the leaders of authoritarian regimes – they understand the way he does business and how he views the assets of the United States. They also frequently see their governments as a sort of private enterprise. Trump is hardly a Putin or King Salman, but his attitude toward power and control are much more in line with their worldviews than those of the world’s democratic leaders.

Even when deals can be struck quickly with strongmen, to the apparent benefit of the United States, such deals frequently turn sour in the long run.

Just look to the Kissinger years in the State Department or the Reagan White House. Narrow

Real politik” can yield short-term results, but citizens of countries around the world can have long memories.

Choosing easy deals with tyrants may be good for the American taxpayer for a while, but it can create intractable enemies down the line, people who see America as a supporter of tyranny rather than an advocate for liberty. Trump should be mindful of that, as he shifts American foreign policy away from values and toward a purely interests-based calculus.

3. Multilateral arrangements should be embraced, not avoided

Trump seems deeply skeptical of international institutions and multilateral arrangements. That is a problem – especially for trade.

Trump’s withdrawal from the Paris Climate Accords and his threatening NATO allies has done much to undermine his personal status and the national status of the United States as the indispensable nation.

Part of America’s enduring power and influence in the world has been thanks to its underpinning of a set of international institutions. Yes, the government has violated those rules from time to time, but every American president since the Second World War has, at the very least, acknowledged the importance of those rules and institutions for the maintenance of world order and commerce.

Trump seems to have real antipathy toward multilateral trading arrangements, be they trade groups like NAFTA or harmonized trade zones like the Trans-Pacific Partnership (TPP).

If America does not anchor those arrangements, it does not mean they will cease to exist. TPP, for example, may be revived sans the United States. And because America no longer shows interest in the international trade architecture, China is swiftly moving to fill the gap with its own set of competing institutions and a massive international investment initiative, the “One Belt, One Road.”

Just because Trump prefers working one-on-one doesn’t mean the world will agree. By withdrawing from, or otherwise negating, multilateral trade arrangements, the United States will be stuck on the outside looking in, rather than driving the agenda as it has done for decades.

4. The President, and his representatives, have to be credible

Some Trump boosters have argued that the President doesn’t need to understand all the ins and outs of a trade deal or trade policy to cut deals. Any good executive knows his limitations and can appoint experts and “details people” to handle the nitty-gritty elements to achieve his vision.

The problem with this characterization is that it does not reflect the way Trump has done business or how he now conducts himself in the White House.

He seems to like having competing power centers in his administration, as well as placing heavy reliance on members of his own family for advice. These competing power centers, and Trump’s apparent willingness to change directions on a whim, make other countries’ leaders doubt the authority of US delegations to actually speak on behalf of the President.

Frequently members of Trump’s own team are blindsided by their boss, as occurred when he decided not to publicly state America’s commitment to Article 5 of the NATO treaty. This has led to the appearance of an administration seemingly at constant war with itself – and that doesn’t make cutting deals easy.

Establishing credibility, and the belief that promises will be kept, is crucial to a successful negotiation. Few countries are going to come to the table with Trump or one of his delegates, if they think he will change his mind without warning.

5. America isn’t getting ripped off

A centerpiece of Trump’s presidential campaign was about America getting ripped off. It’s as if our trade and diplomatic officials have for years been fumbling about in the dark, blind to the machinations of the far savvier and craftier negotiators and leaders of other countries. Why the American political class is so uniquely devoid among the nations of the world of competent leadership and strategy is never addressed by Trump or his supporters

The truth is that America actually does very well overall, out of the world’s interlocking diplomatic, security, and trade architectures, partially because America designed them to be that way.

Our currency is the global reserve currency, which gives the government (what economists call) an “exorbitant advantage” for American borrowing. We use the mechanisms of the World Trade Organization to take action against rule-breakers.

But Trump is also not wholly wrong. He points out, for example, the case of China taking advantage of WTO rules that give new entrants some benefits over earlier adopters. It seems Trump does not fully grasp why they benefit, which may make fixing the problem somewhat difficult for his administration.

Trump seems more eager to destroy the world trade architecture than repair the spots that have issues. He can fight to end the late-entrant advantage in the WTO particularly. But it should be addressed through that mechanism and through bilateral negotiation, not by threatening to dismantle the whole system because a country (other than America) can game the system effectively.

America benefits very nicely from the current trade system. There’s a lot that can be fixed. But attacking the current framework as a whole and trying to replace the multilateral institutional order with a bunch of bilateral deals will only harm American interests, and it will undermine the expansion of free trade.

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John Engle

John Engle is a merchant banker and author living in the Chicago area. His company, Almington Capital, invests in both early-stage venture capital and in public equities. His writing has been featured in a number of academic journals, as well as the blogs of the Heartland Institute, Grassroot Institute, and Tenth Amendment Center. A graduate of Trinity College Dublin, Ireland and the University of Oxford, John’s first book, Trinity Student Pranks: A History of Mischief and Mayhem, was published in September 2013.

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