"Wow We Have a Deal!" "Oops -- Nope"
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2019-05-10 15:59 by Karl Denninger
in International , 167 references Ignore this thread
"Wow We Have a Deal!" "Oops -- Nope"
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smiley

You have to chuckle.

China tries to do what they always do -- cheat.

There's a basic principle of negotiation that unless you are willing to risk the other guy turning over the table and walking off once you have a bargain on a specific area of negotiation you don't take it back without it being a function of some other compromise.  To do so is to mark your negotiation as bad faith or worse, mendacious.

You might get away with this sort of thing in one small area of a complex negotiation, mostly because the other side simply misses what you did.  But you won't get away with it in any larger context nor if you do it repeatedly; it will be noticed, you will get caught and you will get hammered on it.

The correct answer to such an event is to get up and walk off.  Every time.

I've negotiated plenty of deals; this is a basic, fundamental principle.  You pull something like this with me I get up and head to the airport.  If you want me to come back you have to not only rescind all of the bull**** you tried to run you must also pay for the airline ticket both ways with some other concession.

Generally, when I've had to do this, I don't get further than the door of the building before whatever document was sent with the crap in it gets torn up -- and we can then get back to business.  It also doesn't happen a second time, as the other side knows exactly what the response is going to be if they try it, and that it's a waste of time.

There's a very difficult problem with China and the trade situation: They have structured their entire economy around cheating and embedded it into the Community Party, which has top-level control over all of it.

Trying to change that is likely a bridge too far; it would require the Chinese Communist Party, and Xi himself, to acknowledge that (1) what they were doing was and is wrong and (2) they'll cut it out.

The second you might get.  The first you won't get.

Communists are never wrong, you see.  They can't be.  To admit so is to admit their political and economic system is wrong and therefore that other competing ideas might be superior.  Down that road lies their own death and they know it.

Can you get a "deal" under these conditions?  I tend to doubt it -- nothing is impossible, but it's highly unlikely.  We should have never let things go this far; the problem was apparent at least as far back as 2000, but nobody wanted to take it on from either side of the aisle.  But the siren song of corporations offshoring and getting lower costs (even though they were screwing Americans blind with job cuts and lower wages) was just too much for CONgres and past Presidents to resist -- so here we are.

As far as "who has more to lose" that one's easy: They do.

China is a nation that has so-ridiculously overheated its markets and economy with printed money that if demand contracts and thus so does GDP the results will be catastrophic, perhaps even leading to the destruction of their government.  A military option, whether through threat or otherwise, is exceedingly dangerous for them as well; there's no free lunch available to them in that regard either.

The US will not enjoy a trade embargo with China but we'll survive it and on the other side of the adjustment we'll benefit mightily from it.  China, on the other hand, likely will not survive at all with their present form of government.  They simply don't have the margin to absorb that kind of disruption given their "centrally planned" view of how things were going to turn out -- and which now, are not.  Their best case scenario is an economic/banking system collapse.  Their worst case is a civil collapse.

My view is simple: **** the Chinese.  Tell them that either the IP theft stops right now and without any other deal on the table or we're going to have a bonfire with their Treasuries on the South Lawn of the White House in the amount they stole over the last 20+ years.  That's probably all of them.

If they want to play sneaky bastard and go back on commitments, well we can do that too.

Toss this back at them and if they don't like it they can pound sand.  If they want to play nasty the next obvious response is to shut off their access to FedWire -- and the entire US banking system.  "So sorry China man, no transact in dollars possible."

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Themortgagedude
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Sorry dude. I didn't order the undercoating and I'm not going to pay for it. See Ya!

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Tickerguy
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Yep.

Anyone who has ever bought a car knows how this works.

They try to pull this **** all the time. The only proper response, once you have some part of the transaction negotiated and they try to change anything material about it, is to walk out immediately.

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Winding it down.
Themortgagedude
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I've gotten some ridiculous bargains on cars compared to what other people get. But you've got to be willing to walk away a few times in your life. You just never know until you walk what you're able to get.

Honestly this is one of the areas where Trump should win. He's stared down bankers and won. Can't imagine he doesn't know he's holding "trump" cards. Without a doubt China needs trade with us more than we need them.

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I think its time we ask ourselves if we still know the freedoms that our founding fathers intended for us. Ronald Reagan 1964
Wa9jml
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My home town bought a pickup truck for my Dad, who then worked for the village, to drive. My Dad and the Mayor, a close family friend, went to pick it up. The truck was bought through a sealed bid process, and when they went to the dealer in Highland Park to get it, the dealer tried to increase the price. The Mayor and my Dad walked out, so the dealership was stuck with a truck painted orange. Oops!
Tickerguy
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Yeah, that wasn't very smart on the part of the stealer...

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Winding it down.
Emg
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Most likely the Chinese are trying to hold out past the election, on the assumption that they can buy a Democrat victory with all that $$$$ that Americans have shipped over there for years.

Otherwise, the worst that can happen is that there are permanent high tariffs on Chinese goods, and the Chinese economy goes down the crapper as jobs move back to America. Not really a big downside; even if Americans have to pay more for Made-In-America products, they'll recoup the money by not having to replace their Chinese-made products every three months.

It's probably worth noting that Chinese agriculture is suffering at the moment due to the swine flu epidemic and the harsh winter. So without US food imports, the Chinese people may have to revert to the eating habits of the 'Cultural Revolution', when they discovered that Commissars taste just like pork.

Oh, yeah, and US customs caught a million pounds of possibly swine-flu-infected pork being smuggled in a while back. So shutting down Chinese imports may not be a bad idea. That's pretty much biological warfare.
Peterm99
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Emg wrote..
. . . not having to replace their Chinese-made products every three months.
I think you're way too optimistic.

Since the glut of Chinese stuff really started taking over, many "Made in USA" products have also taken a bad hit from a quality POV, IMO. I expect that's because American manufacturers have noted that Americans are willing to buy crap so long as it's cheap, so they, too, have cut quality in order to reduce the prices they charge. It's as if they realized that they don't have to build a quality product anymore, just one with just a little better quality than the poor quality stuff the Chinese send us - and, unfortunately, "a little better than poor" is usually still poor.

Eliminating imports from China won't be enough to change the current mindset that "just barely above marginal is all we need to shoot for". It will require the purging of the MBAs, accountants, marketers, and lawyers that are currently running most companies and the return of old-fashioned "work ethic" that leads to pride in workmanship, etc. The purge of those currently running many of our companies, while difficult, is probably doable, but restoration of the old-time work ethic is probably not, given how badly the mores, culture, etc. of this country have degenerated and continue to degenerate. IMO.

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". . . the Constitution has died, the economy welters in irreversible decline, we have perpetual war, all power lies in the hands of the executive, the police are supreme, and a surveillance beyond Orwells imaginings falls into place." - Fred Reed
Cthulhu
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The funny thing is that this technique can be proven to have been basic business since the freakin' Sumerians around 3000 BC -- and that may only be because it could be documented then with the invention of writing. As a negotiating technique, it may even predate written language.

And, yet, people are expected to be fooled.....
Radiosity
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"The correct answer to such an event is to get up and walk off. Every time."

... something something Theresa May something something...

@Emg "That's pretty much biological warfare."

Goes nicely with the chemical warfare they're already engaged in :/
Tickerguy
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Quote:
The funny thing is that this technique can be proven to have been basic business since the freakin' Sumerians around 3000 BC -- and that may only be because it could be documented then with the invention of writing. As a negotiating technique, it may even predate written language.

Well of course.

And it's recognized in all the basic manuals of law too. If you get an offer and make even one change of any sort the entire rest of the offer is void.

That is, I say "I'll buy your house for $250,000 and close in 45 days." You say "close in 30 days." I say "bye Felicia!" You protest -- "I took your offer of $250k!"

No you didn't. As soon as you countered on any term the original offer is extinguished; the entire deal is replaced with the counter, and I have no obligation on the original terms. At all.

One-shot deals where we negotiate everything with one piece of paper are clean in that regard. Where it's dirty poker is when we're doing something complex and the negotiation takes days, weeks or months.

When I was settling my mother's estate I ran into this bull**** in a real estate deal. The alleged buyers negotiated a deal in the usual sort of way but then kept coming back trying to get another bite outside of their inspection window. The way such windows work is that they're present for to do whatever diligence with expert(s) of your own choosing, at your expense, and make ONE attempt at a renegotiation IF you find something that (1) wasn't already disclosed or (2) obvious to casual viewing by yourself when you looked through the property. That's reasonable.

What they tried was not, and when they made the second attempt I blew the deal up. It put a couple of weeks on getting the house sold but was definitely the right call.

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Winding it down.
Whitehat
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another major issue with allowing China to fail once we stop their games are the major real estate markets. in no way is this the only reason for vastly inflated metro markets, however with firsthand knowledge, they are expatriating large amounts of capital. anything that chokes them also hurts Europe which got accustomed to selling them high-end goods.

additionally China was an issue long before 2000 as through the 90s they came to dominate the hard parts businesses which was probably their first foray into counterfeiting and IP theft. everyone liked getting dirty foundry and casting businesses out of their areas and sending filth and scraps to the Chinese to be reprocessed. **** all if they did not consider that the sane approach was to simply do our industry in a clean fashion. remember a funny movie about Wall Street many moons ago where such third world countries were said to consider pollution a national treasure. and Americans liked being able to buy Asian tools and hardware dirt cheap with a s******ing smugness at the American blue-collar workers dying off. little did they realize that the towns that they gentrified were supported by industry.

where Europe needs to be given credit is that they made their heavy industry clean, although even they offshore very nasty stuff. this is the sin for which we are being punished.

Americans and Europeans like slave labor and live with the hope that those slaves will become middle class consumers further enslaved to our higher-end services and products. not going to happen folks and the Chinese deeply resent us for it. we are to blame for letting it happen.

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Captainkidd
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Quote:
Since the glut of Chinese stuff really started taking over, many "Made in USA" products have also taken a bad hit from a quality POV, IMO. I expect that's because American manufacturers have noted that Americans are willing to buy crap so long as it's cheap...


I've worked in Industrial/Manufacturing Engineering for the bulk of the last 30 years.

Another factor in this is that young people do not enter into manufacturing/trades anymore. Walk Factory floors (Like I do every day) and you see a rapidly aging work force, and helpers that are unable or unwilling to learn the skills of the men they are helping.

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Emg
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"another major issue with allowing China to fail once we stop their games are the major real estate markets."

I for one would love to see Chinese money stop flowing into Vancouver, so kids there could actually afford to buy a place to live. People seem unable to realize that the true cost of all that cheap Chinese tat is that the money comes flooding back to push up house prices.

"Since the glut of Chinese stuff really started taking over, many "Made in USA" products have also taken a bad hit from a quality POV, IMO."

True. I've seen plenty of complaints in the last few years about products that are made in the USA. Many have gone downhill too, in pursuit of maximum profit.
Asimov
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AvE on youtube has a wonderful series of videos of tool teardowns. While there is some quality difference that's a function of price, in general it seems pretty much all new tools are junk in one way or another.

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It's justifiably immoral to deal morally with an immoral entity.

Festina lente.
Mannfm11
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I like the ignorance of the numbers. Tariffs are going to cost the average family $767 a year. That, opposed to the $6000 of debt they take on directly or indirectly through the deficit. How long can this go on?

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The only function of economic forecasting is to make astrology look respectable.---John Kenneth Galbraith
Tickerguy
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No they won't (cost them that amount.)

First, there's substitution by manufacturers and sellers. Think they won't? Oh yes they will. If they don't someone ELSE will and eat their lunch.

They will.

Second is the fact that IF someone ELSE substitutes then you CAN'T pass that on to consumers because now the other guy is cheaper and if you try it you're ****ed and sell zero.

Third is the fact that basically nothing you NEED comes from China. Plenty you WANT might, but food doesn't and neither does fuel. Nor does medical care. Nor does education. Nor does housing. So........

Do I care if Apple gets ram-rodded up the *******? Not a bit.

Oops.

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Winding it down.

Mannfm11
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That was my point Karl. $6000 is roughly the family of four's cost of financing the trade deficit. We could start by moving about $500 billion in hospital administration costs into manufacturing.

There is no bigger reason the wages of most American's are stuck in reverse while the top 200,000 or so are getting richer. Wall Street earns fees on debt. The flow of debt is on the middle class into the pockets of banks and mortgage companies. The middle class is hocking the only thing many have left, the equity in their homes.

$500 billion goes to China and much of it gets spent again in China. But, much is spent to buy the assets the USA has to sell to finance the shortfall. It happens, because Americans have credit, until they don't. When trade us more in balance, Americans take American salaries and wages and buy American goods and the spend money in American towns. The factories weren't the only thing that left most American manufacturing centers. The restaurants, the hardware stores, the plumbers, electricians, construction workers, etc. left as well, or went broke first.

This is all about whether America is going to stand as a nation, or are we going to be merged into the third world. Trump isn't perfect, by any means, but he doesn't have a lot of company in DC. The city is getting fat by selling America out, rather than selling American. Americans of all races have no standing with the Democrat Party and about half the Republicans. We have become their slaves. The guy from Central America has more rights to the pursuit of happiness.

Try capitalism is about cycling money through the economy on a sustainable basis. Some ventures don't work, but it is about capital spending and capital, not credit.

China has a problem they need to fix. Domestic demand. Pollution. Pay their workers enough to buy their goods and raise their prices and standards. Clean up their environment. Their goods might not be so cheap and the world would balance out. The people of America are being screwed by our government out of a per capita basis for education and health equal to the cost of a Chinese worker.

BTW, I get a sense Trump is starting to sound like KD. I heard him mention posting health prices. He had a guy who was billed something like $17000 for a urine test up with him. I suspect, if hospitals had to compete, they would be forced to get rid of the administrative fat and most Americans would buy insurance for what they needed, coverage against catastrophes.

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The only function of economic forecasting is to make astrology look respectable.---John Kenneth Galbraith
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