Trade tariffs: Real war or phoney war?

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President Trump

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Are we in a trade war – or are we still negotiating?

As President Donald Trump launches his 25% tax on steel and 10% tax on aluminium from the EU, Mexico and Canada, it could be just a negotiating ploy.

If real war is a continuation of politics by other means, a trade war might be a continuation of negotiations by other means.

However, his opposite numbers in other countries don’t appear to see it that way.

Europe is figuring out how much to levy on bourbon, cranberries and jeans. The average Mexican is about to find that any steel, pork legs and shoulders, apples, grapes, blueberries and cheese coming from north of the border has just got a lot dearer.

Yet, if you take the example of Mr Trump’s dealings with China – its key target on trade – rhetoric and reality are often different.

On several occasions the tough talking was ramped up, threats were made – then positions softened. A trade war with China has been avoided – so far.

Even on the issue of ZTE, the Chinese mobile firm that Trump so-publicly banned from America, there was a change of heart. In the end, he threw ZTE a lifeline.

The US says it is still open to negotiation over its steel tariffs, so long as those on the other side of the table make concessions.

So, perhaps this is simply how negotiations take place in the Trump era. Loudly – and in a blaze of publicity.

But on the understanding that President Trump has not changed much in the last 30 years, his best seller “The Art of the Deal” might provide a guide to his tactics.

His most quoted deal in the book is how he bought a Boeing 727 valued at $30m from Diamond Shamrock, a Texan oil company, which he knew were desperate to sell. He pitched in at an absurdly low price of $4m and settled at $8m.

If you couple that story with his other famous line – “If you’re going to be thinking anything, you might as well think big” – the basics of his strategy emerges.

And those basics are: start with a big, indeed an eye-wateringly huge argument that shocks and confuses everyone – and then offer a compromise which is such a relief that no one realises how much they have lost.

  • US imposes metal tariffs on key allies
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By this logic the start of a trade war is, for President Trump, simply the ultimate negotiating argument.

Big Deal

The late Bruce Wasserstein, an investment banker who pioneered hostile takeovers in the 1980s, also wrote a book about deals – “Big Deal”, which explains in deft, incisive prose what many people find so inexplicable about Donald Trump.

“Sometimes”, he wrote, “there is great advantage to confusion. Confusion, whether just apparent or real, gives the other side a rational reason for accepting proposals which are irrationally unfair.”

In “Big Deal” he also warned: “The tendency of inexperienced negotiators, often due to their insecurity, is to be too belligerent and inflexible.”

Now, President Trump is nothing if not experienced. Even so, Mr Wasserstein explains the consequences of too much aggression: “When one side has bargaining strength it sometimes becomes giddy with power.

“Maintaining perspective is important because one day the tables may turn and a loss of dignity is seldom forgotten or forgiven.”

In business the downside of too much belligerence is that the resulting resentment can loose you a deal, and may prevent you from getting another.

In politics, with its infinite complexities, it means you may loose a lot of other things as well. By sowing resentment in the field of trade, you poison other areas too: security, finance, investment, immigration – to name just a few.

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