Donald Trump, negotiator or brinksman?

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Donald Trump says he is a great negotiator. But he’s actually a brinksman — a master of brinksmanship. This works great in business, where the government can bail you out. But if you crash the government, there’s no one to save you.

I’ve studied negotiation with the Harvard Negotiation Project (the originators of “Getting to Yes“). When you use these techniques to analyze the negotiating methods of Donald Trump, you notice a pattern.

  • Trump suggests a course of action that has high rewards but great risks.
  • His extreme positions are intended to move others in his direction, not necessarily as something to be taken on face value.
  • He hedges the risk in his positions by expecting others to come in and fix things if they go wrong.

Let’s look at some examples.

Threatening treasury default is quite effective

Last week, Trump repeated his suggestion that if the economy went south, we could renegotiate the terms of our Treasury debt. “You go back and say, hey guess what, the economy just crashed. I’m going to give you back half,” he told Norah O’Donnell of CBS This Morning.

This is an extreme position because the dependable, liquid, and secure nature of U.S. Debt Securities is the backbone of the world financial system. As Fed Chair Janet Yellen said, “They play a critical role in financial markets, and the consequences of such a default, while they’re uncertain, I think there could be no doubt that it would be long-run harmful to the U.S. interests and, at a minimum, result in much higher borrowing costs for American households and businesses.”

Would Trump actually do this? Not a chance. But by threatening to do so, he could strengthen his negotiating position on budget issues and borrowing. We saw this in the posturing around the debt ceiling over the last few years. If you take the financial system hostage and threaten to plunge the world into a lasting depression, you can get pretty much anything you want.

Deportation, religious tests for entry, and border walls won’t happen, but they change the discussion

Donald Trump has threatened to deport 11 million undocumented immigrants. American Action Forum, a conservative group, estimates this would cost $400 billion dollars and reduce the US GDP by 2%.

The Mexico border wall would cost $25 billion, but, of course Mexico would pay for it. It would also cause widespread resistance from property owners on the Mexican border, whose land the government would have to buy in compensation.

Blocking Muslims from entering the country is questionable from a legal standpoint, and would certainly create backlash from the Muslim countries working with the U.S. in fighting terrorists.

Of course these policies, like everything Trump says, are just suggestions. As Trump said on Fox News, “anything I say right now, I’m not the president. . . . Everything is a suggestion, no matter what you say, it’s a suggestion.”

So maybe a President Trump would agree simply to block illegal immigrants from using any health services rather than deport them all. Perhaps he’d settle for four times as many border patrol officers instead of a wall, or expanded checks on people entering the US from Muslim countries. But it’s the threat of these extreme actions — and the millions of screaming, angry people willing to back him in these threats — that are central to his negotiating technique.

Why Trump’s method works in business, but not government

Look at what has happened when Donald Trump, businessman, has been backed into a corner. He takes big risks on casinos, then declares bankruptcy. He starts a scam university, then shuts it down. And yet he appears to be a successful businessman. How is this possible?

You can make a lot of money if you take a lot of risks. It is, frankly, the easiest way to make money, because you don’t have much competition — you are doing things that nobody else has the stomach for. The problem is how you weasel out of the problem when the risk goes bad.

Trump did three things to escape disaster from these risks.

  1. He depended on the government. Specifically, he depended on the US corporate bankruptcy laws, which allow an orderly exit from a failure in which creditors don’t get fully paid back.
  2. He banked on his name. His assets would be worth less without “Trump” on the marquee. This allowed him to retain money and escape personal ruin as he navigated these failures.
  3. He retained the best lawyers. These slowed everything down and made it more costly for those pursuing him.

The President can’t use these methods to avoid risk.

Imagine for a moment that Trump uses his usual techniques in negotiating on behalf of America. He can threaten to do anything — default on T-bills, give nuclear weapons to South Korea, deport 11 million people. And he appears crazy enough to do these things. He is pursuing brinksmanship. And it could very easily work, because other countries, congress, and the world financial community really don’t want any of these things to happen.

If these techniques sound familiar, it’s because they’re the techniques of Vladimir Putin — which is one reason why Trump thinks he’s such a great guy.

But there are two problems with this.

First, as the Harvard Negotiation Project people will tell you, the most important part of a negotiation is what comes afterwards — both parties need to work together to make the agreement succeed. Trump’s techniques leave scorched earth behind. He will soon make enemies of Democrats, Republicans, allies, and the business world. The world doesn’t work very well when its most powerful leader has destroyed every relationship necessary to the economic and political operation of the planet.

Second, in the past, Trump has been able to fall back on American law to escape the consequences of his actions. This is called “moral hazard” — pursuing risky behavior in the knowledge that somebody will bail you out if you fail.

Who bails out imprudent risk-takers — whether they’re US automakers or the Mexican government? It’s the American treasury and international financial institutions like the World Bank and the IMF. The US government is not only too big to fail, it’s too big to bail out. What Trump’s backers don’t realize is that he’s used to taking big risks and winning with a safety net. If he destroys the world economy and America’s place in the world, there is no safety net.

Morally, I find Trump’s ideas repugnant. But the moral outrage is hiding something worse. Great negotiator my ass. Trump is just a brinksman. And there is no escape from the brink Trump wants to bring us to.

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One Comment

  1. You’ll probably be called an elitist so-and-so, what with your quoting people from Harvard and all. However, I think you’ve nailed it. Great analysis.