OUR ALLIES AND ENEMIES ARE STARTING TO IMITATE TRUMP’S WAY OF DOING BUSINESS

…President Trump got into an argument with this US Trade representative, Robert Lighthizer.

Trump is treating our allies like he did his business suppliers, and that’s not good.

In the president’s own book, “THE ART OF THE DEAL”, it only deals with Trump’s deal-making on a one-time basis.  Trump’s negotiating theory from the book is to “never back down”.  His approach is to keep pushing for what you want to deal until the other party gives in, and gives it to you.  

Because his approach was for dealing with contractors, builders and banks, Trump usually only dealt with them for a single negotiation.  After they had fulfilled their part of the deal, most of them never dealt again with the Trump organization.  That’s because the Trump organization has a long-time reputation for not treating their suppliers, from builders, appliance manufacturers and even mattress manufacturers and major banks, very poorly.  You may recall that Trump dealt only with the Deutsche Bank.  That’s because they were the only bank that would loan money to the Trump organization.

But the Deutsche Bank has for years been fined for multiple problems, including money laundering, and they have spent over $19 billion on legal costs since 2008.  That includes spending $7.2 billion on a settlement with the US government in 2017 over claims that it packaged and sold toxic mortgages.

But moving on, as the President of the United States, Donald Trump has to deal with the same people in other governments, more than just one time.  America’s allies, our enemies and even those individuals that work for Trump within the government and Congress, that requires something that is not covered in Trump’s sales book.  That being, a true professional has to be able to compromise.  That’s not a common tool in Trump’s tool box.  Trump is more of a, “my way or the highway” kind of guy, and that doesn’t sit well with America’s friends and allies, and definitely not with our enemies.

In politics, this is known as “repeated play”.  The idea is that the player needs to strategize differently if they know they are going to have to face off multiple times, rather than just once.

As an example of what not to do, Trump got into a bizarre and awkward public debate with his own US trade representative, Robert Lighthizer, and this was on live TV.  It was also in front of a laughing Chinese envoy.  Lighthizer and Trump got into an argument about whether the “memorandums of understanding (MOU)” that the United States had with China, and that they had spent weeks negotiating, would be meaningful and enforceable.  Lighthizer said an: “MOU” is “a binding agreement between two people or organizations.” Trump contradicted him, saying of MOUs: “To me they don’t mean anything.”

For Trump, any agreement between any two individuals or groups, is just an item that can be “worked around” by either party.

To many, this argument was just another example of White House disarray and amateurism.  However, Trump’s comments offer useful insight into the central defect in the Dealmaker in Chief’s deal-making strategy.

An MOU is only as strong as the individuals or the group’s reputation of sticking with the deal.  Trump has shown in his own businesses that, “If you shake hands with Donald Trump, you’d better check the number of fingers you have left after the hand-shake.”

There is no external enforcement mechanism with an MOU; instead, it’s a statement that two sides want to do business together, under the understood terms. It’s essentially an honor-bound agreement that a relationship will commence or continue.

For this and most kinds of agreed transactions, whether it’s a handshake deal or a written contract, the most effective enforcement mechanism is not some threat of penalties being imposed, but rather the desire of both partners to maintain their relationship and their reputations.  Of course, there should always be ways for either party to determine that the MOU is being properly honored by both parties.

It doesn’t take a PhD to understand why someone like Trump would be the type to find such agreements totally worthless.

Throughout his career, Trump clearly viewed his business deals as one-off transactions, just as a mob-boss would do.  He expects to try to extract as much as he can today and assume no future relationship tomorrow. In literally hundreds of his former situations, he has been alleged to have reneged on money owed to plumbers, carpenters, caterers, and even bankers.  (Michael Cohen stated in his recent public meeting with the House, that Trump had him call some of his suppliers over 500 times over 10 years, just to tell them he wasn't going to pay their invoices.)  Some supplier companies to the Trump organization have gone into bankruptcy because Trump refused to pay a large invoice from a supplier for his building of a Trump hotel.  The reputation of the Trump businesses is very poor with many major builders and suppliers.

As one Trump observer put it, “To Trump, there is always an infinite supply of business bridges, and bridge loans, to burn.”

For the most part, for Trump, this strategy has worked, so long as the carpenters and caterers in Florida didn’t talk to their counterparts in other parts of the country or the state.  Later in Trump’s career, his reputation did catch up with him, as he found it harder to get financing. Turns out, word gets around with those Wall Street bankers.  That’s why only the Deutsche Bank would loan money to the Trump organization.  The reality is that the Deutsche Bank's reputation is similar to Donald Trump's.  Kind of like "business Brothers".

This explains why and how Trump has tried to approached deal-making working out of the White House.

Whether negotiating with trading partners or congressional Democrats, Trump has trouble understanding the negative consequences if he pulls-out from a deal he has already struck.  Negotiating on behalf of the United States is so different from negotiating for a one-off contract with a plumber or carpenter.

In government, there is always “repeated play”.  Trump must sit across the table from the same counterparties, again and again.  Trump doesn’t realize that if he doesn’t keep his word, it will be harder to make a deal next time.  Even if a next deal is struck, Trump knows that in the deal he has made, it is possible that either side might defect., and Trump's reputation for pulling out doesn't help.

Trump may well be correct to distrust China’s commitment for keeping their word, whether in an MOU or an official “agreement”.  But over the years, America has built up strong relationships with our allies, who might be inclined to help us keep China in line.  However, with Trump and his past, we have been alienating our allies by reneging on other international agreements such as: on climate change, a Pacific Rim trade pact, and the Iran deal.

The point is that the US has levied arbitrary tariffs on China, citing Trump’s nonsensical “national security” rational.  Trump has already admitted that the real aim was to gain leverage in trade negotiations.  Even when a trade deal has been struck, as in the case of NAFTA 2.0, Trump still declined to lift metal tariffs on Canada and Mexico, as he had promised.  Presumably the European Union (EU), where Trump is threatening more bogus “national security” tariffs on autos, this is just to improve his bargaining position in a totally separate negotiation.

It is no mere coincidence that some other countries are pulling out of international pacts, or eyeing “national security” as an excuse to skirt their own trade obligations.

Basically, they are saying, “If Trump can do it, why not us?”

To the United States’ real peril, due to this President Trump, we are treating our longtime friends, just like Trump’s one-time contractors. 

We should not be surprised when these nations notice, then adapt and, worst of all, they imitate Donald Trump’s way of doing business.

The case in point is going on today in Vietnam.  After all the hoopla of their 2nd "Summit," the North Koreans are saying there is no deal unless the US drops all of their sanctions.  No compromise discussed, and the US had to "walk".  

Sounds like Kim Jong Un has read Trump's book.

One more issue that will take years after the Trump administration to correct.

Copyright G. Ater 2019