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Negotiating explained

danmand

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Corran Addison
July 9 at 9:17 PM
The best, most cogent and elegantly simple explanation into the inexplicably destructive negotiating processes of the president,by Prof. David Honig of Indiana University.

Everybody I know should read this accurate and enlightening piece...

“I’m going to get a little wonky and write about Donald Trump and negotiations. For those who don't know, I'm an adjunct professor at Indiana University - Robert H. McKinney School of Law and I teach negotiations. Okay, here goes.

Trump, as most of us know, is the credited author of "The Art of the Deal," a book that was actually ghost written by a man named Tony Schwartz, who was given access to Trump and wrote based upon his observations. If you've read The Art of the Deal, or if you've followed Trump lately, you'll know, even if you didn't know the label, that he sees all dealmaking as what we call "distributive bargaining."

Distributive bargaining always has a winner and a loser. It happens when there is a fixed quantity of something and two sides are fighting over how it gets distributed. Think of it as a pie and you're fighting over who gets how many pieces. In Trump's world, the bargaining was for a building, or for construction work, or subcontractors. He perceives a successful bargain as one in which there is a winner and a loser, so if he pays less than the seller wants, he wins. The more he saves the more he wins.

The other type of bargaining is called integrative bargaining. In integrative bargaining the two sides don't have a complete conflict of interest, and it is possible to reach mutually beneficial agreements. Think of it, not a single pie to be divided by two hungry people, but as a baker and a caterer negotiating over how many pies will be baked at what prices, and the nature of their ongoing relationship after this one gig is over.

The problem with Trump is that he sees only distributive bargaining in an international world that requires integrative bargaining. He can raise tariffs, but so can other countries. He can't demand they not respond. There is no defined end to the negotiation and there is no simple winner and loser. There are always more pies to be baked. Further, negotiations aren't binary. China's choices aren't (a) buy soybeans from US farmers, or (b) don't buy soybeans. They can also (c) buy soybeans from Russia, or Argentina, or Brazil, or Canada, etc. That completely strips the distributive bargainer of his power to win or lose, to control the negotiation.

One of the risks of distributive bargaining is bad will. In a one-time distributive bargain, e.g. negotiating with the cabinet maker in your casino about whether you're going to pay his whole bill or demand a discount, you don't have to worry about your ongoing credibility or the next deal. If you do that to the cabinet maker, you can bet he won't agree to do the cabinets in your next casino, and you're going to have to find another cabinet maker.

There isn't another Canada.

So when you approach international negotiation, in a world as complex as ours, with integrated economies and multiple buyers and sellers, you simply must approach them through integrative bargaining. If you attempt distributive bargaining, success is impossible. And we see that already.

Trump has raised tariffs on China. China responded, in addition to raising tariffs on US goods, by dropping all its soybean orders from the US and buying them from Russia. The effect is not only to cause tremendous harm to US farmers, but also to increase Russian revenue, making Russia less susceptible to sanctions and boycotts, increasing its economic and political power in the world, and reducing ours. Trump saw steel and aluminum and thought it would be an easy win, BECAUSE HE SAW ONLY STEEL AND ALUMINUM - HE SEES EVERY NEGOTIATION AS DISTRIBUTIVE. China saw it as integrative, and integrated Russia and its soybean purchase orders into a far more complex negotiation ecosystem.

Trump has the same weakness politically. For every winner there must be a loser. And that's just not how politics works, not over the long run.

For people who study negotiations, this is incredibly basic stuff, negotiations 101, definitions you learn before you even start talking about styles and tactics. And here's another huge problem for us.

Trump is utterly convinced that his experience in a closely held real estate company has prepared him to run a nation, and therefore he rejects the advice of people who spent entire careers studying the nuances of international negotiations and diplomacy. But the leaders on the other side of the table have not eschewed expertise, they have embraced it. And that means they look at Trump and, given his very limited tool chest and his blindly distributive understanding of negotiation, they know exactly what he is going to do and exactly how to respond to it.

From a professional negotiation point of view, Trump isn't even bringing checkers to a chess match. He's bringing a quarter that he insists of flipping for heads or tails, while everybody else is studying the chess board to decide whether its better to open with Najdorf or Grünfeld.”

— David Honig
 

essguy_

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This is a good explanation of two very broad classes of negotiating.

Trump’s “Art if the deal” is now 40 years old and way out of date. And as the author states, it is suited for negotiations where there is a winner and a loser. So it still has applications: For example - buying a used car, negotiating out of bankruptcy with creditors, buying furniture... I.e, those negotiations where it doesn’t matter if you leave hating each other since you’ll seldom deal again.

It is totally unsuited when dealing with equal counter parties and counter parties where you want a long and productive business relationship. For diplomacy it is disasterous since trust takes years to build and only moments to destroy. Trump forgets that there will come a time when the US will have to seek help from its former friends and he has burned bridges.

Trump’s chaotic approach to diplomacy WITH FORMER ALLIES adds fuel to the fire that his actual goal is to simply drive wedges between the US and it’s former friends, thus weakening the US. Maybe Trump’s upcoming meeting with Putin is to exchange a progress report for a mid-term report card. Lol!!
 

Frankfooter

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Agree.

TRUMP’S LIMO DRIVER OF 25 YEARS CONFIRMS HE’S AN UNREPENTANT ASSHOLE
The president, who has a storied history of stiffing workers, (allegedly!) owes his driver hundreds of thousands of dollars in overtime pay.
https://www.vanityfair.com/news/2018/07/trump-limo-driver-lawsuit

Someone who even treats his own, long term employees that badly burns a lot of bridges quickly.
Like his trip to the UK, where May must be ready to kill him.
 

Aardvark154

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In many ways David Honig's comments are not particularly new, I can recall discussions here on these very points many months ago, including that Real Estate Development is a quite different type of business than manufacturing.
 

danmand

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In many ways David Honig's comments are not particularly new, I can recall discussions here on these very points many months ago, including that Real Estate Development is a quite different type of business than manufacturing.
Negotiation is not new. Most of us who are in Business have had a class or course on negotiation.
 

oldjones

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danmand said:
Think of it as a pie and you're fighting over who gets how many pieces. In Trump's world, the bargaining was for a building, or for construction work, or subcontractors. He perceives a successful bargain as one in which there is a winner and a loser, so if he pays less than the seller wants, he wins. The more he saves the more he wins.
Unfortunately Trump's personality is so damaged that outside his family circle he sees only winners and losers. Or more accurately, only potential losers, that he desperately needs to win against. But winning is hard and uncertain; it requires work, talent, allies and luck, and even then you don't always win.

He long ago discovered that his hunger to be the proven winner is most easily met — it will never be satisfied — as long as he makes everyone else into losers. "Bankruptcy, not paying what I owe and getting what I contracted for nothing, makes me smart". His casinos go broke, his name's ripped off them, but when he skips town in a jumbo jet with his name on it, he can gloat others are holding that bag. As long as he keeps the game going, as with his still unpaid taxes, he can't be loser, can he? As long as he can move to a bigger arena, surely he's winning, isn't he?

But he knows inside, just as he did when his father drilled that need into him. So even if the next try is bigger, the slams at his 'foes' are meaner, and the lies more desperate, what he sees just looks worse. And his reactions worse: "Stable genius"?

It's his curse. And now, thanks to the desperation of the Republican Party for any winner at any price, for the next few years (and the rehab period afterwards), it's the World's.
 

onthebottom

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He’s clearly trying to reset the norm. The best example of this I’ve heard is that there has been a trade war with China for more than a decade and that now the US is finally fighting back.

He’s in a position of tremendous leverage, the US doesn’t need NATO. China’s economy doesn’t work without the US market, Canada is an economic colony of the US. He’s resetting the mean revision point.
 

essguy_

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He’s clearly trying to reset the norm. The best example of this I’ve heard is that there has been a trade war with China for more than a decade and that now the US is finally fighting back.

He’s in a position of tremendous leverage, the US doesn’t need NATO. China’s economy doesn’t work without the US market, Canada is an economic colony of the US. He’s resetting the mean revision point.
No, Trump would have been much better to simply sign on to TPP which had strong IP requirements written in. OR faced China, united with the US's long-time allies. Instead he's trying to "win" against everybody. Further - you are forgetting that China finances a lot of the US deficit - using the US $ they collect due to the trade deficit (in goods). So it is not a simplistic case of eliminating $200 bln in trade deficit. Ask yourself who will step in to buy US debt or more importantly - how much will yields have to rise if China debt buying were drastically reduced? Do you have an answer to this? Were you even aware of this? The US has done well using borrowed money. Trump is growing the deficit. China has the largest Treasury holding next to the US Fed. Do not forget these facts.

Oh, and Trump has not "reset" anything. On trade, especially thus far with China, he has accomplished nothing. He's walked back on a lot of threats - even the $200 bln in targeted goods for tariffs has a long window before being implemented. ZTE is a good example. A lot of hot air, but in the end, nothing really special to brag about and a lot of rationalizations for the walk back.

Edit to add: Further to this - how does Trump propose that the US fulfill any radically increased demand from China (and other trading partners) to "balance" trade. Eg: With China, how would the US realistically be able fulfill demand in the short term if China were to ramp up purchases of US goods in accord with Trump's delusional timetables? The only way this works (balanced trade) in the short term is if the US CONSUMER stops purchasing Chinese goods and does without. This is because of the reality that at this stage in the economic cycle (10 years of growth, VERY low unemployment, rising wage pressures) the US lacks the excess capacity to even fulfill this demand should it occur. It's basic economics, which Trump doesn't understand and his team is too fucking scared to enlighten him.
 

oldjones

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He’s clearly trying to reset the norm. The best example of this I’ve heard is that there has been a trade war with China for more than a decade and that now the US is finally fighting back.

He’s in a position of tremendous leverage, the US doesn’t need NATO. China’s economy doesn’t work without the US market, Canada is an economic colony of the US. He’s resetting the mean revision point.
Neatly put. "I make you all losers — which you are — so I win! Oh! and BTW, so does my Great Nation, once a few disloyal types like Harley-Davidson and get over their short-sighted view."
 

danmand

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Neatly put. "I make you all losers — which you are — so I win! Oh! and BTW, so does my Great Nation, once a few disloyal types like Harley-Davidson and get over their short-sighted view."
The result is going to be much worse. After OTB and the other Americans are through celebrating their many victories, they will wake up to a world, where $US is no longer the worlds reserve currency, and where USA will no longer be able to finance HUGE deficits by printing money.

It is one of the greatest mysteries in modern time, why USA is working hard to dismantle the worlds financial system they themselves put in place, and which has been of enormous benefit to them.

USA already pays $500bn per year in interest on its $21Tn debt. Imagine if the interest was 7%.
 

Ref

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He’s clearly trying to reset the norm. The best example of this I’ve heard is that there has been a trade war with China for more than a decade and that now the US is finally fighting back.

He’s in a position of tremendous leverage, the US doesn’t need NATO. China’s economy doesn’t work without the US market, Canada is an economic colony of the US. He’s resetting the mean revision point.
Well put.

Trump can be a dick, but he is a dick that is usually right.

Hopefully our Crime Minister will realize that he does not have a hand of strength and that he works towards compromising the best deal he can for Canada.
 

essguy_

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Well put.

Trump can be a dick, but he is a dick that is usually right.

Hopefully our Crime Minister will realize that he does not have a hand of strength and that he works towards compromising the best deal he can for Canada.
Usually right? Where do you get that? For Canada - Trump's "facts" are usually wrong, beginning with the obvious - using section 232 to state that Canadian Steel is a "security risk". Even Wilbur Ross disagreed with that. Further Trump exaggerates the state of trade with Canada and focuses on things like dairy subsidies while ignoring US farm subsidies. Canada/US trade is huge, and disruptions will hurt the US on a job for job basis the same as Canada. The only difference is the US is larger, so job losses on a percentage basis are smaller. If that is "winning", then Trump is right.

Oh, and what sort of "compromise" do you have in mind? Be specific.
 

oldjones

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Behind tariff walls, or in a world free of them, traders can always make a buck, and deal-makers do best when the rules — if there are rules — are changing and uncertain. But even on the national level there's more to life than just making a buck, and as the old saying goes, 'when the chips are down, then you find out what friends you have left'. Not to mention the folks who never were your friends and only care about having enough chips to get a seat on a plane they can hijack, or to buy a truck they can fill with C4.

If only Donny had given any evidence of smarts beyond posing badly, lying baldly and self-serving sharp-dealing, the world outside his family might have a tad better sleep.
 

danmand

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Behind tariff walls, or in a world free of them, traders can always make a buck, and deal-makers do best when the rules — if there are rules — are changing and uncertain. But even on the national level there's more to life than just making a buck, and as the old saying goes, 'when the chips are down, then you find out what friends you have left'. Not to mention the folks who never were your friends and only care about having enough chips to get a seat on a plane they can hijack, or to buy a truck they can fill with C4.

If only Donny had given any evidence of smarts beyond posing badly, lying baldly and self-serving sharp-dealing, the world outside his family might have a tad better sleep.
I think the situation is worse than what most people think. There is indeed a big reset coming, and I fear that the only way out of the massive debt for USA is a shooting war with China and Russia.
 

jcpro

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You poor children! Trump is saying aloud, in the open and clearly(without the bullshit diplomacy) what most had known, but only dared to say it in private. There's no deep meaning there nor any hellish evil awaiting. Just a straight up, simple vision for his presidency and the country. Btw, his message is not for you or the assholes on tv, but for his electorate alone. It's always been so and he is extremely disciplined and consistent in that. Trade, immigration, economy, judicial appointments are all within his electoral platform. So is the style of the delivery. And it started on day one at the steps of the Capitol. Who can forget that speech, eh? Conrad Black is right, Trump is a different creature all together.
 

JohnLarue

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Usually right? Where do you get that? For Canada - Trump's "facts" are usually wrong, beginning with the obvious - using section 232 to state that Canadian Steel is a "security risk". Even Wilbur Ross disagreed with that. Further Trump exaggerates the state of trade with Canada and focuses on things like dairy subsidies while ignoring US farm subsidies. Canada/US trade is huge, and disruptions will hurt the US on a job for job basis the same as Canada. The only difference is the US is larger, so job losses on a percentage basis are smaller. If that is "winning", then Trump is right.

Oh, and what sort of "compromise" do you have in mind? Be specific.

I agree with most of your points
except
disruptions will hurt the US on a job for job basis the same as Canada.
Canadian jobs will be hurt disproportionately
#1. The US economy is far less dependant on trade. The majority of their GDP is internally generated , far more so than any other industrialized country.
#2 The US economy is exceptionally strong right now
# 3. If the typical US exporter loses his Canadian orders , it is a disappointment (10% maybe), in many cases if a Canadian exporter loses his US business he is screwed (25%-60%) & may need to shut the doors

These tariffs are going to disruptive & cause grief on both sides of the boarder, no question, but we will certainly feel the pain to a greater extent
 

Polaris

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He’s clearly trying to reset the norm. The best example of this I’ve heard is that there has been a trade war with China for more than a decade and that now the US is finally fighting back.

He’s in a position of tremendous leverage, the US doesn’t need NATO. China’s economy doesn’t work without the US market, Canada is an economic colony of the US. He’s resetting the mean revision point.
To make a long story short, what if Trump is wrong and miscalculated on China?

What if China secretly wants to pursue a trade war with the USA?

Suppose the trade war reaches a logical conclusion and there is no more trade between the USA and China. What happens to all those global supply chains?

Companies will be forced to choose to set up in both countries or just one.

At this stage in the game, they will choose both or just China.
 

onceaday101

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What if the Chinese/US trade gap that currently favours the Chinese $375B/yr. is mitigated? What if US companies can do business in China without having to adopt state sponsored ChineseCo's as partners upon entry? What if China is forced to cease stealing intellectual property, especially tech and bio? What if the US equity markets remain buoyant while Chinese markets founder? What if China is forced to properly value the Yuan? What if China blinks first - and they will - and fair trade practices are adopted?

To make a long story short, what if Trump is wrong and miscalculated on China?

What if China secretly wants to pursue a trade war with the USA?

Suppose the trade war reaches a logical conclusion and there is no more trade between the USA and China. What happens to all those global supply chains?

Companies will be forced to choose to set up in both countries or just one.

At this stage in the game, they will choose both or just China.
 

Polaris

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Oct 11, 2007
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What if the Chinese/US trade gap that currently favours the Chinese $375B/yr. is mitigated? What if US companies can do business in China without having to adopt state sponsored ChineseCo's as partners upon entry? What if China is forced to cease stealing intellectual property, especially tech and bio? What if the US equity markets remain buoyant while Chinese markets founder? What if China is forced to properly value the Yuan? What if China blinks first - and they will - and fair trade practices are adopted?
I think the PRC will respond to that by saying, keep dreaming.

Then ignore the Americans.
 
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