The president needs an economist. Not just any economist; he desperately needs a game theorist, someone who can impress upon him why the negotiating strategy that has (mostly) served him well in his private business utterly fails him now.
Specifically: He needs someone to explain “repeated play”— and the idea that players may want to strategize differently if they’re going to face off multiple times rather than just once.
On Friday, Trump got into a bizarre and awkward public debate with his own U.S. trade representative, Robert E. Lighthizer. On live television, and in front of a laughing Chinese envoy, Lighthizer and Trump argued about whether the “memorandums of understanding” that the United States and China have spent weeks negotiating would be meaningful and enforceable. Lighthizer said an “MOU” is “a binding agreement between two people.” Trump contradicted him, saying of MOUs: “To me they don’t mean anything.”
To many, the argument was just another example of White House disarray and amateurism. But Trump’s comments also offer useful insight into the central defect of our dealmaker in chief’s dealmaking strategy.
Trump isn’t technically wrong about an MOU’s legal enforceability, by the way. There is no external enforcement mechanism with an MOU; instead, it’s a statement that two sides want to do business together, under given terms. It’s essentially an honor-bound agreement that a relationship will commence or continue.
For this and arguably most kinds of transactions — whether handshake deals or even written contracts — the most effective enforcement mechanism is not some threat of penalties imposed by a third party, but rather the desire by both partners to maintain their relationship and their reputations.
It doesn’t take a PhD to understand why Trump would be predisposed to find such agreements worthless.
Throughout his career, Trump clearly viewed his business deals as one-off transactions, in which he should try to extract as much as he could today and assume no future relationship tomorrow. In literally hundreds of cases, he is alleged to have reneged on money owed to plumbers, carpenters, caterers, even bankers.
To Trump, there was always an infinite supply of bridges (and bridge loans) to burn.
And for the most part, this strategy worked, so long as the carpenter and caterer in Florida didn’t talk to their counterparts in New Jersey. Later in his career, his reputation did seem to catch up with him, as he found it harder to get financing. Turns out word gets around with Wall Street bankers.
Nonetheless, you can see these private-sector lessons in how Trump approaches dealmaking at the White House.
Whether negotiating with trading partners or congressional Democrats, Trump seems to have trouble envisioning the negative consequences if he defects from a deal he has already struck. But negotiating on behalf of the United States is different from negotiating a one-off contract with a plumber.
In government, there is necessarily repeated play; there is no inexhaustible supply of sovereign nations or political parties to haggle with. Trump must sit across the table from the same counterparties, again and again. Trump appears not to realize that if he doesn’t keep his (or his country’s) word this time, it will be harder to make a deal next time. Even if a next deal is struck, he has made it more likely that the other side will defect when convenient, too.
Trump may well be correct to distrust China’s commitment to keeping its word, whether in an MOU or an “agreement” (as U.S. officials are newly rebranding the documents, apparently at Trump’s request). But over the years, we’ve built up strong relationships with our allies, who might be inclined to help us keep China in line. Instead, we’re alienating them by reneging on other international agreements: on climate change, a Pacific Rim trade pact, the Iran deal.
We have also levied arbitrary tariffs upon them, citing nonsense “national security” rationales when Trump admits the real aim is to gain leverage in trade negotiations. Even when a trade deal has been struck, as in the case of NAFTA 2.0, Trump still declined to lift metal tariffs on Canada and Mexico as promised. Presumably the European Union — which Trump is threatening with “national security” tariffs on autos to improve his bargaining position in a separate negotiation — paid attention to this outcome and will adjust its strategy accordingly.
And meanwhile, as experts observed at a trade conference I attended here over the weekend, it’s likely no mere coincidence that other countries are pulling out of other international pacts, or eyeing “national security” as an excuse to skirt their own trade obligations.
To the United States’ great peril, we’ve treated our longtime friends like Trump’s many one-time contractors. We should not be surprised when they notice, adapt and — worst of all — start to imitate us.