Why is the failure of tariff negotiations with major US trading partners inevitable?
In the financial markets, they are trying to promote a new narrative: 'We are about to conclude a trade deal, it’s just a matter of time. We are negotiating with 100 countries, and it's going so successfully that the result will be spectacular.'
The new administration in the White House has yet to earn the reputation of 'foolish negotiators', but everything is heading in that direction. Continuous feeding of the press with 'successful negotiation moves', demonstrative disregard for logic, tact, and a sense of measure and balance, and the formation of unrealistic expectations through grotesquely overheated demands in negotiations – this is the new reality in the USA now.
The main thing in all this is that all these fantastical expectations of fantastically successful deals remain only in the inflated imagination of Trump and his team, while there is not a single real success or fixed position, only foolishness and bravado.
However, it is important to understand whether it is even possible to finalize trade negotiations into something tangible, successful with support for long-term efficiency and stability?
▪️The first – the most important and key. The current US trade balance has developed in the context of many years of reconfiguring the balance of competitiveness and costs.
Globalization has created a cohesive and interconnected global financial-economic structure, where national borders have blurred and industrial clusters have formed in areas of the best balance of costs.
This is not only a question of cheap labor but also a complex of raw material, fiscal, transport-logistical, infrastructural, and other costs.
When a company decides to build a factory, many factors are taken into account: access to infrastructure (energy, utilities, information, transportation, etc.), cost of raw materials and intermediate products, transportation costs, and the degree of logistical connectivity (how quickly the production can be supplied with raw materials and components and how quickly the products can be delivered to customers), the level of tax burden, including access to subsidies, the level of bureaucratization, which affects the speed and success of obtaining permits for conducting activities, and much more.
The very fact that American companies moved production to Asia means that it is cheaper, faster, more efficient, and more stable to produce and sell products there, given the aggregate factors. This imbalance cannot be corrected through negotiations.
In the USA, what was beneficial to keep remained: production with a high degree of automation, high-margin and/or highly integrated production, such as the aerospace industry, microelectronics, and automotive, companies in the defense industry, whose relocation is prohibited in accordance with numerous national security protocols, and the production of short-term goods, which are unprofitable to import, such as food products and petrochemical products.
▪️The second – the USA has nothing to offer its trading partners, and in turn, they have nothing to offer the USA.
If we imagine a scenario of zero tariffs, it is impossible to replace the imports that come to the USA, as it would be too expensive, time-consuming, and inefficient (why is this the case? A separate topic), but the USA will also not be able to increase exports, as in addition to production constraints in the USA, there are limitations of purchasing power in external markets and the economic feasibility of buying additional goods from the USA.
▪️The third – for constructive negotiations, it is necessary to master the subject matter and have a strategic depth of the final goal.
Direct and indirect facts from the course of the negotiations suggest that the negotiating team in the USA catastrophically lacks mastery of the factual material and subject matter, compensating for this with rudeness, threats, and 'brutishness'.
To be effective in negotiations, one must thoroughly understand the subject of discussion, all the weak and strong points, both for the opponent and oneself, in order to skillfully maneuver and counteract by pressing on the opponent's weaknesses, but nothing like that exists at the moment.
Only weak countries, from which the USA is almost independent, can resort to frontal blackmail and threats.
