By Graham Summers, MBA | Chief Market Strategist
Thus far, the Trump tariff wars are following a negotiation framework that Trump has used throughout his career in commercial real estate.
That pattern:
Open with an outrageous demand, thereby anchoring negotiations to a number that is highly in your favor.
Ask for something in return for whenever you walk back from your original ask.
Present your opponent with a long-term opportunity in exchange for deal that isn’t what they want right now.
Regarding #1, anchoring is a psychological phenomenon through which the negotiating parties become psychologically “anchored” to the first number or “ask” introduced in the negotiation regardless of how outrageous it is.
Consider the recent tariff war with Mexico.
President Trump introduced the negotiation with tariffs of 25% on all exports from Mexico to the United States. This was a huge and outrageous move to make (he could have opened with tariffs of just 5%), and it served the purpose of anchoring the negotiation on a number that is highly in his favor. This sets the #2 in our list: asking for something in return whenever you walk back from your original ask.
Now that negotiations are underway between President Trump and Mexico’s President Claudia Sheinbaum, Trump can walk back from the threat of 25% tariffs (say to tariffs of 20%, 15%, etc.) while simultaneously asking for something in return. In this manner, it appears as if he’s “giving ground” and should get something in return for doing so (the rule of reciprocity).
It’s working.
Mexico has already agreed to put 10,000 troops at the border in exchange for the 25% tariffs not being introduced for a month. This is extraordinary. On Thursday, there were NO tariffs between the two nations. Four days later, by anchoring the negotiation on an extreme outcome (25% tariffs) Trump has already gotten Mexico to “buy into” the need for better border security between the two nations without giving up anything (all he’s done is postponed his intended tariffs by a month).
Which brings us to #3 in the above negotiations.
Trump is famous for suggesting a long-term relationship that is mutually beneficial in exchange for an immediate deal that is highly in his favor. In commercial real estate, this might consist of asking a contractor to perform a job for less money in exchange for the promise of a long-term relationship through which Trump would give the contractor lot more business in the future.
In terms of the current trade war between the U.S. and Mexico, President Trump could very well end up finalizing negotiations with tariffs of 10% on imports from Mexico, while offering any number of benefits to the country as part of a long-term trade agreement. In this fashion he scores a huge win politically, while introducing a new more balanced trade deal between the two nations.
For investors we are in a new environment in which those who have studied Trump and his strategies have a definite edge. Because of our understanding of what Trump was doing over the weekend, we viewed the recent correction as an opportunity, NOT the start of a market crash or bear market.
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Best Regards
Graham Summers, MBA
Chief Market Strategist
Phoenix Capital Research
