Global trade wars; haggling in the bazaar
It is widely known that one of the tourist ‘must-sees’ when visiting Marrakech is the Souk. The intricately winding labyrinth of inter-linked marketplaces in the Old City - where hawkers sell anything from jewellery to carpets, from perfume to furniture - is a true taste of ancient Araby, at least according to the guide books.
If you have ventured into this bustling hive of capitalism (or den of thieves, depending on your view) then you know that in the Souk you have to haggle. No-one pays the asking price, and part of the fun is seeing how big a reduction you can get.
This is apposite to the 45th President of the United States of America, who claims to be the co-author of a book called ‘The Art of the Deal’. Despite doubt over his actual contribution to it, President Trump is very proud of this book – he is on record as saying it’s his second favourite read, after the Bible. It’s a fair assumption that he considers himself a good negotiator.
We should see both the current, seemingly escalating trade skirmish between the US and China; and between the US and Mexico, Canada and the EU; and indeed, between the US and the rest of the world, in this light. For perhaps the biggest surprise about this most unpredictable of presidents is that he is, in fact, very predictable. Understand the following two things about President Trump and both the so-called ’trade war’ and the upcoming on-off-and on-again summit with North Korea become entirely understandable and entirely forecastable:
- President Trump means what he promises his base supporters and works to fulfil the thrust of his promises to them. He wants tariffs, he wants to build his wall and he wants to enact tax cuts.
- He views everything as a deal – a haggle, if you will. Everything is a transaction.
Using these two insights - and taking on board the general rules we should all understand before buying artisan souvenirs in the Souks of Marrakech - we can see how this whole farrago is likely to proceed. These rules are:
- The initial asking price is usually ridiculous. You should never, ever pay this price (remember Trump’s campaign pledge to levy a 45% tariff on all Chinese exports to the US? And his suggestion that Mexico would pay for his ‘wall’?)
- Your counter offer to an initial price should be proportionately ridiculous to the ridiculousness of the original price
- You should never appear too keen to complete the deal; feigning indifference is a useful ploy. Pretending to walk away from the haggle is a practice so time-honoured, it is practically a ritual (hence Trump just last week ‘walking away’ from the summit with Kim Jong-un). The other side will re-engage with you if it is in their interests (like Mexico and Canada over the renegotiation of NAFTA)
- Know what you’re prepared to pay and stick to it. If you really don’t want something, just leave the negotiating table and don’t look back (the Paris Climate Agreement)
- Ultimately both sides want to reach a mutually satisfactory conclusion.
Incidentally, there are 11 rules listed in ‘The Art of the Deal’.
So, given these basic rules and Trump’s predictability, how do we feel the trade spat is likely to develop?
After a period of bluster from all sides, with threats of retaliation and world trade organisation (WTO) litigation, the haggle will begin in earnest, and in the end a deal will be done. Trump will get some concessions and move the debate in his direction, but underneath, world trade will continue – perhaps a little less robustly than before – but based on its own momentum. The US trade deficit will still exist and will still be large – it simply isn’t economic to build aluminium or steel plants in the US, and US-designed cars are generally less desirable to global consumers than German-designed cars or Chinese-built iPhones.
Finally, we should understand one other key point about Trump. He has made it absolutely clear that he loves the deal, he lives for the haggle, just like the store owner in the Souk. So, we should expect to see his predictable unpredictability continue for as long as he remains president, and who knows, that may be out to 2024.
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