Negotiations, we've all been involved in them at one time or another. Perhaps it was with your spouse or your boss.
Negotiating is a process. And it is almost never a straight line.
First, you begin with your objective, where you want the other party to go. Perhaps a raise from your boss, or to purchase a new home for the family.
Really any event or activity that requires a joint decision can be part of a negotiation. And that is exactly what is occurring in the Trade Negotiations between the United States and the Peoples' Republic of China.
The American objective is clear: to achieve a more equitable trade relationship with China, one that ultimately would approach a balance of trade.
As you know the United States is currently billions of dollars in the hole each year in their trade with China. According to the latest figures from the Census Bureau, which keeps track of these things. The US Trade Deficit with China exceeded $360 billion dollars last year.
Clearly that is not a number that is sustainable over time. And no rational nation would seek to continue such a relationship.
So the goal of the Trump Administration is clear, stop the bleeding.Bring trade from China, somewhere close to balance.
Now in any negotiation, there are often many ups and downs. You've seen that in your own life. Times when the two parties see eye to eye, and times when they don't. Times when each side holds one priority and times when they don't.
From my perspective, the Trump Administration has exercised a classic carrot and stick approach in these negotiations.
First came a concerted effort to remove or reduce Chinese sales in the US Market. The most obvious aspect of this strategy was tariffs. By placing tariffs on Chines goods, they immediately became more expensive, and thus less attractive to US Consumers.
It was a bold, in your face move, designed to reduce Chinese exports to the US.
But this was only part of an overall strategy of reducing the deficit. US Multinational companies in China, the principal producers of goods exported to the US, were also faced with those tariffs. And the goods that the multinational produced in China became less price competitive.
So the American Multinationals have begun a major move in their supply lines, bringing production either to America or at least to non-Chinese Countries.
And finally, as part of this overall sea change in our relationship to overseas US Producers, as part of the Tax Cuts and Jobs Act, passed in the last weeks of 2017, the US encouraged the multinationals to bring their offshore dollars back to the United States. Thereby providing those companies with the financial resources needed to build new lines of production.
Really a three-prong approach that essentially made American and Chinese products compete on a more level playing field.
It was a stick approach.
Comply or tariffs and taxes will be charged to your account. And much of that strategy is already in place. Well before the current set of negotiations were begun.
Finally, if last month's trade data are any indication, then the Stick approach has already begun to pay off. We have just reached a recent low in Chinese imports.
Today, if all goes as scheduled we will see the second half of this complex strategy, the Carrot. This will be an opportunity for China to help even the balance of trade through its increase in the purchase of United States products.
If all goes as planned, and the Phase 1 Agreement is signed today, then it will be a real boon to American farmers in particular.
But this is all just part of the larger framework, of one of the most complex negotiations ever undertaken. Today is just a benchmark along the way.
The trade relationship of the Chinese and Americans will no doubt be a long and arduous one. And to fully understand what is happening requires a look at the overall relationship.
Today, two leaders will come together to sign an Agreement, an Agreement that will mark the formal legal progress that has been made so far.
But remember: much has already been accomplished well before this document is signed.