Dec 12, 2019 08:54 PM

Opinion: Uncertainty Is Trump’s Negotiating Tool of Choice

Photo: VCG
Photo: VCG

President Donald Trump has deployed a negotiating style that served him well in the business world – keep those you are negotiating with uncertain as to what the potential outcome will be of negotiations. That strategy now has continued to result in uncertainties with countries in negotiations with the U.S., but with the markets as well.

The blunt tool of tariffs has been utilized by Trump like few, if any, other presidents in U.S. history. Trump has claimed the blunt tool or the threat of using that blunt tool has brought parties to the negotiating table with the U.S. His claim is backed up by efforts to negotiate a limited trade deal with Japan, the U.S.-Mexico-Canada Agreement (USMCA), updates to the U.S.-South Korea trade deal and others.

While the South Korea deal has been completed, others still remain in the yet-to-be-finalized category, though they are expected to be brought into effect. The U.S.-Japan deal still needs approval by the Japanese parliament to be put into place starting in January.

These dramatic actions by Trump started early. U.S. agriculture was put at a disadvantage just three days into his presidency via the exit by the U.S. from the Trans-Pacific Partnership (TPP) agreement. That deal, minus the U.S., continued to move forward with the remaining 11 countries that were party to the TPP. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) went into effect and offered U.S. competitors more-favorable trade terms on products like beef and pork into the key Japanese market, in particular.

The U.S.-Japan accord will provide U.S. beef and pork exporters the same terms as they would have enjoyed under TPP. But until the deal is in place and implemented, the hurdles still remain for U.S. exporters of those products.

As for USMCA, the pact has been completed through the administration, but House Democrats continue to negotiate on specific issues related to labor, environment and enforcement provisions in the agreement to try and secure approval in the House. That package has not yet been finalized, but those involved have declared that they are “close” to an agreement.

Approval of the pact is still fully expected, but timing remains the key issue. If an agreement can be reached yet this week, Senate Finance Committee Chairman Chuck Grassley said that should allow a House vote on the pact yet this year. And the House will now be in session through Dec. 20 instead of exiting Washington for the year on Dec. 12.

Processes could unfold quickly for a vote yet this year on USMCA, including the administration providing the implementing legislation to Congress along with mock markups by the House Ways & Means and Senate Finance Committees.

We still expect the deal will be approved, but timing could well slip into 2020 if the agreement is not reached shortly.

Now we have Trump reviving steel and aluminum tariffs on imports from Brazil and Argentina, arguing that the countries have engaged in currency devaluation, which makes their products more competitive on the world market. That would be another negative for the U.S. agricultural sector, in particular. Brazil and Argentine officials deny they have taken any actions to devalue their currencies, maintaining that the values reflect market conditions.

The action by Trump comes despite the administration reaching agreement in May 2018 with Brazil and Argentina that would cap their metal shipments via export quotas set at a specific volume each year.

Late Monday, the Office of the U.S. Trade Representative declared a French tax on technology is onerous and that retaliatory tariffs as high as 100% on French wines, cheeses and handbags would be justified. The U.S. said the digital revenue tax France has proposed “discriminates” against U.S. companies and it is exploring whether to open investigations into similar digital levies in Austria, Italy and Turkey. While threatening levies on new categories of imports from France, the Trump administration said it would consider whether to impose “fees or restrictions” on French services. The new tariffs will not be imposed until after a public comment period that includes a hearing in Washington on Jan. 7, when producers and consumers of the affected goods can argue against them, and a Jan. 14 deadline for rebuttal comments.

But Trump, in remarks Tuesday morning in Europe, indicated that he thinks something can be worked out with France on the matter.

And then there is China. The U.S.-China dispute goes back to April 2018 with the imposition of tariffs by the U.S. on Chinese goods and the Chinese countered with their own tariffs, hitting U.S. agricultural products, in particular. We have seen this dispute move toward agreement only to have that movement slide back into a deep dispute.

The agreement in principle announced Oct. 11 at the White House by Trump and Chinese Vice Premier Liu He — the phase one agreement — was yet another one of those steps forward in the process. But in the weeks since that was announced, the steps back seem to outnumber the steps forward that came via that October announcement.

And the steps backward have been in no small part due to Trump himself. His comments that things are “close” to a deal seem to typically be followed by remarks that dash those hopes.

Dec. marked yet another round of those steps back. "I have no deadline, no. In some ways, I think it is better to wait until after the election with China," Trump told reporters in London. "In some ways, I like the idea of waiting until after the election for the China deal. But they want to make a deal now, and we will see whether or not the deal is going to be right; it has got to be right." The remarks follow a familiar refrain from Trump that any deal has to be good for the U.S. and make up for what he says is a long history of China taking advantage of the U.S.

This leverage pattern has been the hallmark of the Trump trade policy, in particular. The actions by Trump on Brazil and Argentina provide little comfort for China that in the event that a phase one deal is finalized, it could just be wiped out or reversed by Trump himself. From the start of this U.S.-China trade dispute, we have advised this will take longer to be finalized than most hope. We have no reason to shift from that view at this point. We have also reminded that any deal with China is up to Trump himself. His trade-related officials can negotiate what they think is the best deal with China that can be had, but if Trump does not think it will, he could reject it. And that is one of the main factors that continues to keep this U.S.-China trade situation and other trade deals shrouded with an air of uncertainty. And uncertainty is rarely a positive.

Roger Bernard is a senior policy analyst at Agribusiness Intelligence of IHS Markit, a London-based agricultural information service provider.

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