The new trade agreement among the United States, Mexico, and Canada not only revises NAFTA, it provides two easy to remember lessons in negotiations: Know what you want and be willing to walk away.
The first of those lessons, knowing what you want, is crucial. The person who knows what he or she wants has a marked advantage over the person who doesn’t. This advantage remains no matter how many people are involved.
As former Secretary of State Henry Kissinger once said, “If you don’t know where you are going, any road will take you there.” In negotiations, the person who isn’t sure of what he or she wants is always lost … and always loses.
Remembering this fundamental of negotiations can be very useful in our personal lives as well as our business. In purchasing a new automobile, for example, the seller has a decisive advantage in that he or she knows exactly what price the car must sell for. Many buyers, on the other hand, have no clear idea of what price they are willing to pay.
Economists call that kind of situation “asymmetric information” and you want to avoid being on the short end of it if possible. In the case of automobile prices, the internet is your friend. Once you have decided on the make, model, and options of car that will fill your needs, you can easily total up the price.
The second lesson from the NAFTA negotiations is that you must be willing to walk away from the negotiations at any time. If you cannot do that, the negotiator on the other side will sense it and use it against you.
During the tail end of the Clinton administration, for example, the White House hosted Israeli-Palestinian peace negotiations. At one point Palestine Liberation Organization Chairman Yasser Arafat walked out. And when then-Secretary of State Madeleine Albright implored him to come back, it revealed plainly that we wanted or needed the deal more than he did — and he was able to take advantage of that.
In the case of automobile negotiations, you shouldn’t fall in love with a car. And even if you can’t help yourself and do fall in love with it, remember that there are competing dealers out there to get you what you want.
The history of the NAFTA revision is an interesting one because it demonstrates how clearly these two lessons come into play.
The initial talks were a total bust. Mexico dropped out and had harsh words for the United States, which threatened then implemented tariffs on many imported products. Canada then dropped out and had harsh words for the United States.
While not involved directly with NAFTA, bilateral trade talks with Europe were plunged into their bureaucratic slough of despond and there were more harsh words for the United States. China also backed out of its bilateral trade talks and had harsh words for the United States.
Eventually Mexico came to realize that it could live with the NAFTA revisions, and Canada, realizing that the U.S. and Mexico were going to proceed without it, rejoined the party.
The trade situation in both China and Europe is somewhat more complicated — in part because of hidden, “implicit tariffs.” These are regulations, customs, and laws — or lack of laws — regarding foreign trade, investment and the rights of foreign individuals and other sovereign nations. They have similar effects as tariffs but lack the buzzword effect that attracts the attention of bureaucrats and news media and stirs up talk of violated international agreements. In Europe they are concealed in regulatory fine print and in local rules and rules. And in China there is the additional problem of stolen or extorted intellectual property and technology.
While the trade negotiations with Europe and China will be more complicated than the ones with our neighbor countries, the fundamental lessons still apply, just as they do at the car dealership. We have to know what we want and be willing to walk away from the deal if we don’t get it.
James McCusker is a Bothell economist, educator and consultant.
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