[David Fickling] Trump’s madman theory of trade negotiations won’t win

Let’s make a deal: I’ll sell you a can of soda for a dollar.

Actually, scratch that, $2. Or maybe I’ll give it to you for free.

On second thoughts, you can have a chocolate bar for $2. But you have to give me a liter of soda in return.

It’s not hard to see from the real world why we don’t like to deal with unpredictable negotiators. When a counterparty’s objectives are unclear and her gambits contradictory, we tend to give up on her.

So what’s going on with the US government’s attempts to improve its trading relationship with China?

US stocks moved higher Tuesday on hopes of an easing in trade tensions, after Bloomberg News reported that Washington and Beijing were looking to restart talks. Don’t get your hopes up, though: The US may instead raise a proposed 10 percent tariff on Chinese imports to 25 percent within days.

Such switchback inconsistency seems to go against the entire edifice of global diplomacy, which largely exists to reduce conflict by increasing the predictability of foreign relations.

Let’s imagine for the sake of argument that -- in line with some of the rumors that have emerged from Beijing in recent weeks -- a more conciliatory faction associated with Premier Li Keqiang is gaining influence in China. Such a group might be in a position to defuse tensions by promising to end forced technology transfers -- a concession Li dangled in March -- and tighten up intellectual-property protections -- a favorite topic for Xi.

However probable you regard such an outcome, it’s hard to argue that it would be more likely in the absence of some sort of credible concession from the US that would make a tactical retreat palatable to Beijing. But credibility is the thing that gets squandered when governments make a virtue of inconsistency.

This isn’t the first time that Washington has adopted such a mercurial stance. The “madman theory” espoused by Richard Nixon, Henry Kissinger and Pentagon Papers whistleblower Daniel Ellsberg during the Cold War attempted to wrong-foot the governments of the Soviet Union and North Vietnam by circulating the notion that Nixon was a loose cannon apt to start a war over nothing.

The current economic balance of power between the US and China doesn’t look so different to the military balance with the Soviet Union that spawned that doctrine.

Like the Soviet Union in the strategic sphere in the 1960s, China in the economic sphere is rapidly advancing from a position of clear weakness relative to the US toward something resembling parity, and perhaps even superiority in the future.

By adopting a more aggressive military posture, Nixon-era Washington hoped to increase the effectiveness of its military force by raising the perceived risk that it would be deployed. By talking tough on trade and tariffs, Trump’s Washington is similarly making the most of its diminishing economic advantage. If “your adversary feels that you are unpredictable, even rash, he will be deterred from pressing you too far,” as Nixon later wrote.

The policy isn’t as insane as its name suggests. For all that Nixon may have sought to portray himself as having an itchy nuclear trigger finger, his madman theory produced less Cold War brinksmanship than the preceding Kennedy and Johnson administrations.

The more salient criticism is that it was a pointless sideshow. The real success of Nixon-era diplomacy wasn’t the attempts to sow uncertainty in Moscow and Hanoi, but the efforts to build confidence in Beijing and the thawing of US-China relations -- a process that, in the long term, contributed to the fall of the Soviet Union and China’s rise.

There are real benefits for both the US and China in stepping back from the brink of trade war, but that path is paved with alliances, not conflicts. The self-styled madmen need to let cooler heads prevail.


David Fickling
David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. -- Ed.

(Bloomberg)