The Art of the International Trade Deal

What Can You Learn from the Trump Chaos

With all the attention being paid to tariffs right now, I thought it could be fun to share lessons I've learned on deal making, using those international trade negotiations as a backdrop. Whether you love Trump or hate him, this series I'm writing will give you some insights that you can use in your next watercooler conversation about him. I'll break down the principles of negotiation that can help you understand what's happening beyond the headlines and political spin.

I wouldn't claim to be an expert, but as a business executive, I've personally led and closed a number of multi-million dollar deals. I've even advised on a few multi-billion dollar negotiations as a consultant. I want to share a few negotiation insights and frameworks so you can judge for yourself on today's most interesting topic.

As a caveat, I want you to know I believe in free trade, and I don't like the idea of tariffs, and also don't really agree that having a trade deficit with a country is a bad thing. But setting that aside, I'm not going to tell you if Donald Trump is right, wrong or crazy. While there are a lot of smart people who disagree with him and his policies, the President's track record as a deal maker is that he gets what he wants.

The only "opinion" I'll give you is that these upcoming negotiations will be more complex with higher stakes than any deal Donald Trump (or anyone else, for that matter) has ever attempted.

The Three Fundamental Choices in Negotiation

In every negotiation there are three choices a negotiator can make, almost at any time:

1. Take what your counterparty is offering
2. Walk away
3. Try to keep negotiating

The first thing you learn in any negotiations class is to understand and improve your ability to walk away. In their groundbreaking book "Getting to Yes," Roger Fisher and William Ury introduced the concept of BATNA - your Best Alternative To a Negotiated Agreement. Understanding your BATNA gives you tremendous power in a negotiation because it defines exactly what you're walking away to if talks fail. With a clear BATNA, you can confidently evaluate any offer against this alternative.

The Power of Walking Away

Let's start with simple transactional negotiations. The reason a buyer and seller come to a deal is that it's mutually beneficial. From haggling in a street market to buying a car or a house, willingness to walk away from a deal is a very powerful tool in negotiations. In transactions like these, there are many potential alternate sellers and/or buyers. The BATNA in this case is to find a different stand at the street market, or a different car dealer. Having confidence that there is another buyer or seller out there gives you more leverage in making your deal.

Anyone who's ever bought or sold something without a price tag has been tested in their negotiating skills, and most of those people think they got a good deal. I'd even be willing to bet that more than half of the parties (on both sides of those deals) walked away thinking they got the better deal. It's one of my favorite things about dealmaking - that it's possible for everyone to walk away happy.

How's that? Let's take a tourist who haggles for a souvenir, and ends up buying it for 30% less than what was initially asked by the seller. This tourist walks away knowing that she saved $3 dollars on what would have cost her $10. She might have a nagging doubt that she could have gone to a different stand selling that identical souvenir and got it even cheaper, but decides saving another fifty cents wasn't worth her time. The seller on the other hand has paid $5 a piece for these souvenirs. She knows that there are customers out there that don't haggle, and just pay $10. She's happy because she has 99 more to sell to those customers, and this one just helped her move one off her shelf.

Knowing There's a Better Deal Out There

It's reasonable to think you shouldn't take deals that aren't as good as your BATNA, and you should be happy to do a deal where the offer is better than your BATNA. But what about option number three -- try to keep negotiating? This is the one that takes research, preparation, negotiating tactics and conviction.

Today, the US already has multilateral and bilateral trade agreements with nearly all of its trade partners. These deals are signed and done -- what is there to negotiate? President Trump has decided there are better deals to be had than the ones we've agreed to, and so he wants to keep negotiating. I don't know enough to tell you how good or bad these current deals are, but its hard to say they couldn't be improved for the benefit of the US. Of course, the deals already done, so why would our trade partners want to change the terms for us?

This is how the tariffs fit in. Some believed that the tariffs were just talk to drum up support from Trump's working class voters, especially since tariffs have historically had a negative impact on both economies involved. It's hard to see how these make sense as a long term policy, but they certainly satisfy Trump's objective to bring partners to the negotiating table. Our trading partners would be much rather reopen discussions on the current deals, than suffer through a trade war, even if it means a few more concessions to the US.

Creating Leverage: Threats and Actions

So was it just talk, or a serious plan to put up walls to the economy?

Nations all over the world recognized the tariff talk as threats, though some might not have seen them as credible -- The US economy would suffer if tariffs were really implemented. Many felt they should wait to see what happens before making any concessions, there were others who saw the threats as credible, and offered some small concessions as the rhetoric heated up. In reality, the threat is pretty credible, because a tariff on any one trading partner hurts them far more than it would hurt the US, who import more than it exports, and has an economy big enough to handle a bilateral trade war.

However, as Trump came closer to his liberation day announcement, whatever he saw in the lead up may just have given more conviction that better deals were still out there. The announcement of tariffs on April 2 was a message to the world that he was serious, and that living with these tariffs on their goods was now their BATNA -- "If you don't make the deal much better for the US, you'll have to deal with these tariffs."

Many negotiations experts will decry the use of threats, the chaos and the type of negotiating that the President has used. In a one-time negotiation, like buying a souvenir, the counterparties don't evolve their approaches. They don't expect to be dealing with each other in future negotiations. World trade negotiations, on the other hand, are repetitive multi-round games. Threats and tactics that hurt the counterparty will work, but one should expect those counterparties to invest in ways to adapt in the future. For the foreign nations dealing with the US, this might mean increasing trade with partners that are more trustworthy, developing more resilience in their own markets.

Questions to Consider

As you follow these trade developments, ask yourself:

• Do you believe Trump is right that better deals are out there to be had -- and how much better do they need to be to justify the cost of pursuing them?
• What does it say about the credibility of Trump's tariff threat that he reduced most of them down to 10% after only a week, and no major deals secured?
• What about using threats like tariffs to gain concessions -- you would expect other countries figure out how to be less dependent on the US -- but can they really find more attractive partners and create resilience in their own markets?

In the coming weeks, I'll be exploring more principles of effective negotiation, exploring the power of conviction in high-stakes deals, and examining the critical differences between one-time and multi-round negotiations. Stay tuned for the next part in this series.