What You Don’t (But Should) Know About China’s Negotiating Tactics
Wall Street came out of the gate this week hard on news that President Trump is taking a tough stance with Chinese tariffs ahead of the May 10 deadline, set last Sunday. Predictably, US-centric headlines are focused almost exclusively on whether that’s the “right” move or not.
That’s little more than mental-floss and, if you fall for it, potentially a very expensive mistake.
Most of the experts you’re hearing “on China” have never been there or, worse, are making critically flawed assumptions about Chinese negotiating tactics intended to boost their own credibility.
Here’s What You Need to Know (And How to Profit)
There’s no doubt the situation is serious, but much of what you’re hearing about the Chinese trade tariff situation is simply wrong.
China doesn’t have to “do X, Y, or even Z” to play ball, let alone shift to our way of thinking in order to get the deal done…an expression I’ve heard in one variation or another countless times over the past 72 hours.
To paraphrase billionaire investor Jim Rogers in a 2010 Forbes interview, many supposed experts on China couldn’t spell China ten years ago.
What most people don’t realize is that rushing into a trade deal with China because our leaders fear an economic collapse is exactly what the Chinese are counting on.
You read that correctly.
More than a few being paraded on national TV or beamed across the Internet have never set foot in China, let alone studied the culture or done business there like he and I have. Not surprisingly, they are totally incapable of recognizing that the Chinese want to play the west like a cheap record, and that their own flawed analysis contributes to making this happen.
Beijing’s negotiators, on the other hand, factor this perspective into their strategy very deliberately using principles laid out in the fifth century by military strategist Sun Tzu in The Art of War. Moreover, they press the advantage at every opportunity, knowing full-well that western media will do their dirty work for them.
Case in point, the mainstream press fell all over themselves to report billionaire investor Warren Buffett’s observation shortly after the President’s tweets that a US-China trade war would be “bad for the whole world.” They couldn’t wait to break the news when the International Monetary Fund’s Christine Lagarde called growing trade tensions a “threat to the global economy.”
They would be reporting an entirely different story if they understood Chinese negotiating tactics.
China’s Negotiation Strategy
China has to be brought to the negotiating table and, unfortunately, the only way to do that at this stage of the game is to embarrass them on the world stage…which is exactly what the President did.
The western press does not realize that China’s negotiating tactics often include endless delays and tactical changes intended to see the other side – in this case – the US – give up or capitulate because our negotiators are simply worn down or too tired to object.
That’s why Chinese negotiators – and I’ve dealt with lots over the years – routinely play to deadlines as a way of extracting concessions that benefit the Chinese position almost exclusively. Their goal, believe it or not, is often to see that no agreement is ever reached.
I know this is hard to imagine, especially if you’ve never dealt with the Chinese. But, it’s critical you understand the framework I am highlighting when it comes to your money.
Profits are still out there, and that’s what you need to focus on.
Figuring out what to buy is pretty simple, especially on big down days when the headlines rage and people are letting their emotions get the better of ’em…
… big tech, certain medical companies and defense contractors.
I laid out a few at the top of my list Monday morning on Varney & Co. when host Stuart Varney asked me if I’d be inclined to wade in or run for the hills.
- Becton, Dickinson and Company (NYSE:BDX)
- Apple Inc. (NasdaqGS:AAPL)
- Microsoft Corporation (NasdaqGS:MSFT)
- Amazon.com Inc. (NasdaqGS:AMZN)
- Raytheon (NYSE:RTN)
Every single one of these companies has the capacity to protect their margins, is growing rapidly, and will continue to grow rapidly no matter what happens with China, and irrespective of whether there’s a deal or not.
That’s because they’re all tied into at least one – sometimes two or three – of the six Unstoppable Trends we follow, which means they’re all backed by trillions of dollars in spending that isn’t going away any time soon.
The posturing we’ve seen over the past 48 to 72 hours is typical for high-stakes negotiations in that part of the world. Those who remain standing are viewed by the Chinese as “committed parties” – all of whom have an incentive to see negotiations conclude.
That’s why senior Chinese officials went out of their way to “note” – off the record, of course – that Vice Premier Liu He is “the closer” and authorized to negotiate on Chinese President Xi Jinping’s behalf. Only now, according to the latest reports, he will attend negotiations on Thursday and Friday, rather than Wednesday through Saturday as originally planned.
That, too, is very deliberate because it helps establish the “case” in the Western mind that the Chinese really do want negotiations to conclude when, in fact, that’s not the case.
Chinese negotiators typically makes such moves because they view deadlines as a tool for further negotiation, not a conclusion like the West does.
Bluntly speaking, China’s used to playing the West as patsies for whom they have great contempt. Ironically, Trump’s tweet and his willingness to jack tariffs ahead of the deadline understood by the Chinese as a line in the sand has probably earned a lot of respect from Chinese negotiators who are undoubtedly busy huddling in darkened hallways because the west didn’t “fall for it” this time.
In closing, we’ve covered a lot of ground today.
Don’t get caught up in the minute-by-minute news flow that’s little more than filler. That’s what the Chinese want because seeing us trip up is part of their negotiating strategy.
Instead, concentrate on buying the best companies including those doing gobs of business with China and for whom a trade agreement will boost margins when an agreement is reached.
For better or worse, China needs the U.S. just as much as the U.S. needs China.
- Expect the posturing to continue for another few weeks until the Chinese run out of options and negotiating room, which means more volatility and better buying ahead.
- China will look to strike terms at the most opportune time when there is a moment of weakness in the U.S. position, even as US negotiators simply want to “wrap up” and move on.
- Remaining strong is the only true path to a “win-win” rather than a Chinese dominated “winner takes all” conclusion.
Until next time,