Power Asymmetry, Trump, and the Art of No Deal
Negotiation strategy is the key to making a good deal.
Posted Mar 07, 2019
Good negotiators do several things consistently.
1. Good negotiators do a lot of research in advance so they understand how they value things, what are the likely interests of the other party, and what are the best alternatives to making a deal.
2. Good negotiators are patient. They play the long game. Good negotiators don't just negotiate once and then run away to enjoy the spoils. They have lasting relationships that rely on people honoring their commitment.
3. Good negotiators are honorable and trustworthy and establish themselves as people you want to make a deal with, which helps them maintain the relationships they create.
Trump's recent series of failures suggest that he does none of these things. His long history of successes and failures are based on an entirely different strategy: power asymmetry.
Power asymmetry in negotiation is based on dealing with people who are generally weaker than you. This is the dominant position of many corporations in a litigation-based society. Governments rarely protect people who can't pay for their protection. If you want to sue McDonald's, Disney, or Trump, you will need a substantial bankroll because lawyers rarely work for free. If you don't have a bottomless pit of cash, you will need to have a case so glaringly obvious and in your favor (like a burned child) that no reasonable jury or judge would decide against you.
It's useful to give the user of the power asymmetry strategy a name. Bully is metaphorically accurate. Intimidator is perhaps a bit nicer.
Power Asymmetry in Practice
Here is a classic strategy of the corporate intimidator: The intimidator makes a deal with you. You and they sign a contract that says they will you pay you damages of amount X in case of condition Y. For example, they may pull out of the deal and sign an agreement that they will pay you amount X if they do. This makes you feel good.
When the bully (sorry, intimidator) pulls out, he says, "We're not going to pay you amount X."
You get a lawyer and you tell the corporate bully, "Yes, you are going to pay amount X."
Now the bully has his lawyers send you a note that says the following: "If you sue me for amount X, I will you sue you in return for [some nonsense]. The cost to sue me we can estimate to be amount Z. We can make Z very high because we have a lot more money than you do. So good luck."
This strategy works nicely against weak adversaries. It suggests that the intimidator is ready to engage in a war of attrition with you and it is surely a war you will lose because you have less to lose before you are out of play entirely.
In other words, power asymmetry is about leveraging your own power to take advantage of weak adversaries.
Trump and Power Asymmetry
Power asymmetry is one of Trump's go-to strategies. You can learn this by reading his book, "The Art of the Deal," where he specifically talks about leveraging your own power. But you can also learn it by taking a look at his recent failures.
His attempt to get Mexico to pay for the wall failed. Why? Because he could not intimidate Mexico. Trump said Mexico would pay for the wall countless times during his campaign. But Mexico clearly has not paid for the wall.
One might ask what leverage Trump has over Mexico? NAFTA, which Trump replaced with USMCA (a 'very' similar deal), restored Mexico's faith in its ability to have a value-creating economic relationship with the U.S. Trump cannot engage in a war of attrition with Mexico unless he is willing to ruin the U.S. economy.
It's not clear that Trump isn't willing to do this, as his failure to negotiate with the Democrats on the wall clearly demonstrated. Here he engaged in a war of attrition with the Democrats, attempting to establish himself as the chief intimidator. He failed. Shutting down the government costs a lot of money, not only in lost opportunities but also in increased costs to pay back workers for work they may or may not have done. More importantly, it pisses a bunch of people off. Trump was unable to shield himself or his party from the damages. The fact that he eventually stepped down from this strategy suggests he is sensitive to these things. Except he then declared a national emergency to pay for the wall, again using his power asymmetry to get what he was unable to through diplomacy. This too has failed because Trump does not have the right to take land from states. Even if he has money to pay for the wall, he'll have to build it on the moon.
Finally, Trump's attempt to negotiate with Kim Jong-un failed as well. Trump could not intimidate North Korea. Some people are more fanatical than Trump and North Korea has a long history of demonstrating this. Trump's is unlikely to have the diplomatic or even military competency to out bully other nations.
Intimidation is notoriously the strategy of the overconfident. Netscape (remember them...barely) failed in their negotiations with AOL because Netscape thought they had such a magnificently better product than Microsoft. They may have, but in their failure to negotiate reasonably, they attempted to bully AOL. Unfortunately for Netscape, AOL had an easy alternative in Microsoft.
Robert Campeau, who some consider a major force behind the financial crash ending the booming 80s, bankrupted more than 250 profitable department stores through a very special kind of overconfidence. He initiated a hostile takeover of Federated Department Stores and, determined to win against Macy's, paid so much for it that he couldn't pay his own bills.
Power asymmetry leads individuals to believe they are invulnerable. This can lead them to take risks and actions that diminish their power as negotiators. Trump has taken numerous actions that do exactly this.
Recall that trust is one of the key requirements of effective negotiators. If people don't believe you, they have no reason to believe you will carry through with your own obligations in any deal you make or even in the value of the product you are selling. During Trump's first year in office, Trump used his power to devalue trust in the American presidency by overturning past decisions of American presidents. Then he goes off to make a deal with no apparent awareness of what he's done.
It's tempting to say that Trump's failures are all part of his strategy. It's not over yet. But people can always say this. Maybe Trump is part of Obama's strategy. Such claims are nonsense. Good negotiation is not about deception unless you're a used car salesman.
It sometimes is about saying you've won when you haven't. That, to be frank, is a strategy of many people in positions both high and low. And some people will always believe them.
You may like Trump, but would you make a deal with him? His tenure in office is a max eight years from beginning to end, and he has clearly demonstrated that deals with the U.S. government beyond that period are effectively null and void. Moreover, his past deals, as he himself reports, are based on power asymmetry. In such cases, the weaker side loses.