Evaluating Negotiation Strategies in the US China Phase One Agreement

Introduction

This essay critically evaluates the negotiation and strategies that helped the Chinese and the American sides in arriving at US-China Phase One Agreement or the US-China Economic and Trade Agreement (henceforth US-China Agreement). This agreement was signed on January 15, 2020 in Washington DC. The US-China Agreement is significant because it brought to an end a trade war between the two economic superpowers of China and the United States, which had gone on for eighteen months. The subject of US-China Agreement is important because it brought respite to the businesses in two countries that were impacted by the trade war between the two countries.

As the trade war was acrimonious and long drawn, the use of negotiation strategies that were successful in allowing the two sides to come to some agreement terms, becomes a significant question in the context of negotiation and culture. The United States and China are culturally different countries and it is expected that the process of negotiation between these countries may also involve the importance of culture. There are two perspectives that will form part of the discussion on how and why negotiation was shaped by culture and cultural differences and to what extent did national cultural difference impact the outcome of the negotiation for the US-China Agreement. This essay first provides a brief overview of these two theories and will then apply the elements of these theories to the facts related to the US-China Agreement negotiation process. The purpose of this essay to assess whether the negotiators followed some of the principles of negotiation that are contained in one or both of these theories. Applying these theories, the essay will be able to critically analyse the negotiation process between the two countries that led to the signing of the US-China Agreement in 2020.

Negotiation

First, just to provide a brief description and background of the US-China Agreement, the United States and China were involved in a trade war that began with the Trump administration imposing tariffs on $250 Billion of Chinese goods (Wong, et al., 2020). This led China to also respond with an increase of tariffs on US products worth $110 Billion. The rest of the trade war saw both the countries try to take tariff related measures for raising tariffs on the goods imported from the other (Wong, et al., 2020). The trade war was a threat to both the countries’ economies because they are big markets and two of the biggest economies of the world, so the market access for each is an important issue. Negotiations took place between the two countries took place because it was understood that the trade was damaging to both countries’ economies.

This negotiations between two sides included a post G20 summit in Buenos Aires where the two sides agreed to halt new trade tariffs for 90 days (Wong, et al., 2020). This was an important step in the process because it brought some time respite by halting the trade tariffs for almost 3 months. This does not mean that the countries would suspend the existing tariffs, but that new tariffs would not be issued by either countries. Importantly, if the parties were not able to reach an agreement within 90 days, tariffs of 10 percent would be raised to 25 percent. The US-China Agreement also included provisions that are meant to make effective tariff rollbacks, expansion of trade purchases, and renewed commitments on intellectual property (IP) rights, technology transfer, and currency practices (Wong, et al., 2020). There are other provisions, that are included in the US-China Agreement. Important amongst these is the pact “to open Chinese markets to more American companies, increase farm and energy exports and provide greater protection for American technology and trade secrets” (Swanson & Rappeport, 2020). Moreover, China committed to buying an $200 billion worth of American goods and services by 2021 as an additional purchase of American products and also to ease some tariffs it on American products, but at the same time, the bulk of the American tariffs placed on $360 billion worth of Chinese goods did remain (Swanson & Rappeport, 2020).

BATNA

The concept of BATNA or the Best Alternative To a Negotiated Agreement posits that a more attractive BATNA or a “walkaway option” increases the bargaining power of the party (Sebenius, 2017 ). This means that for an agreement to be mutually acceptable to both parties the minimum condition is that each side prefers the negotiated deal to its BATNA or the best alternative (Sebenius, 2017 ). In other words, where both parties have BATNA, and even party prefers this to the proposed deal or agreement then there is no possibility of negotiated agreement. In this section, the essay applies BATNA to the US-China Agreement, to analyse if the negotiated agreement was preferable to both parties to any other alternative option for both parties.

It is important to understand the background to what the two sides perceived their interests to be. From the perspective of the United States, the statements by President Trump as the precursor to the first time he raised tariff on Chinese products, were emphasising on his argument that China was not treating America fairly and that he wanted that America should be treated fairly by China (Washington & Wei, 2018). With respect to China, they were taken aback when the first time Trump Administration raised the tariff because they had not expected it (Washington & Wei, 2018). Immediately after this decision was taken, Beijing suspended a meeting with U.S. military officials and summoned the U.S. ambassador in Beijing to complain (Washington & Wei, 2018). China was surprised at the events despite several statements by President Trump to the effect that they were considering some such steps to get China to give a fair trade deal to the United States. The two important persons representing America in the trade talks with China in 2018 were Steven Mnuchin, the US Treasury Secretary and Robert Emmet Lighthizer, the US Trade Representative (Washington & Wei, 2018). In May 2018, just when Present Trump began threatening to levy major tariffs on China, Steven Mnuchin, the U.S.

Treasury Secretary set trade talks in Beijing for May 2018. Trump appointed Mnuchin to head the delegation; Lighthizer was also part of the team. Lighthizer favoured tariffs as a useful stick for motivating change while Mnuchin preferred to use negotiation as a carrot to spur concessions. In 2018 meetings, Lighthizer presented American demands including demand to reduce China’s $375 billion trade surplus with the United States by $200 billion within two years (Shonk, 2019). The late 2018 meetings between President Trump and President Xi resulted in the pausing of the tariffs (Shonk, 2019).

In this situation, it can be said that each side preferred the negotiated deal to its BATNA or the best alternative; which was no deal and consequently continued trade war between the two superpowers. A negotiated deal was possible because the two sides did not prefer the BATNA to the proposed agreement. The BATNA or a no deal situation was not preferable due to the following reasons. First, no deal would have meant that the United States and China continue to levy high tariffs on each others’ goods. In the United States, this would mean that through the new tariffs, America’s annual revenue would increase by about $42 billion (Nasher, 2019). On the other hand, there were significant losses as well for continuing the trade war with China. The increase in the tariff led to increase in government revenue. However, it also led to less competition and increased prices, which saw the rise of prices for products; for example, increased tariff on Chinese washing machines led to more production in America, and increased jobs but it also increased the costs of washing machines and dryers. Another area for concern for America was the losses being suffered by the American farmers due to the continuing trade war with China, which raised the bill for the federal aid program to compensate farmers for their trade-related losses (Nasher, 2019). Therefore, the BATNA of no deal and continued tariff was not preferable to the negotiated settlement that the two countries came to. Even with regard to China, the BATNA of no deal with America was not preferable. At the time of the trade war, China was facing its slowest economic growth in three decades and its shrinking manufacturing sector was an issue of concern. Consequently, at this time China was heavily dependent on foreign consumption, and the US was its biggest export market, (Nasher, 2019). China therefore needed access to the US market (Nasher, 2019). It can be inferred that the BATNA of no deal and continued increasing tariffs would not be preferable to China either. This can also be affirmed by the statement made by the Chinese ambassador to the US in 2018 that “economic decoupling would be disastrous” (Nasher, 2019).

It can be said that the lack of BATNA attractive enough to choose that over the negotiated deal led to the successful US-China Agreement. The individual circumstances of each country in this situation suggest that neither was in a place of power over the other; it has been understood that when a negotiator has an attractive BATNA, they experience greater power than the counterparty, making them less dependent on the negotiation, so that they can obtain better outcomes from negotiations (Prachi, 2019). In this situation, both parties have managed to obtain some benefits from the negotiation. This could imply that neither party had an attractive BATNA in this situation.

Win-win negotiations

Win-win negotiations involve providing advantages to both parties unlike win-lose or lose-lose negotiations where the nature of negotiations are adversarial (Falcão, 2012). What is interesting in applying this theory to the US-China Agreement is that although the nature of the US and China trade war that preceded this negotiated agreement may appear to be adversarial, it is possible that the negotiators for the trade deal managed to get advantages for both sides through a trade deal that benefits both. The question is whether the negotiators for the US and China trade deal apply principles like building a bridge to close communication gap, and value creation and value claiming to successfully negotiate a trade deal after a contentious period of trade war.

In the US-China trade war, Chinese side of negotiations led by Vice Premier Liu He, who was the chief negotiator for the Chinese side had three demands for the United States: duties to be completely revoked; realistic balance of trade; and a balanced deal that ensures that China does not lose face (Nasher, 2019). The last point is significant in cultural context because it refers to the notion of face saving which is a different notion in China than it is in the American culture. As Merkin (2017) writes, there is a crucial difference between China and the United States in how they conceptualise face saving. In the United States, there is an emphasis on individual and professional achievement and the concept of ‘face’ is seen as “a positive social value” that individuals effectively claim for themselves and it is negotiated through communication. On the other hand, in China, the concept of face is “hierachical and embedded in the status quo” (Merkin, 2017, p. 2). In most Eastern cultures, face relates to the respect that people claim for themselves from others (Merkin, 2017). Thus, when the Chinese side stressed on one of the demands being that of face saving, this refers to a principle that is culturally relevant to China but not to the United States; moreover, it refers to something that is not directly related to the trade deal but something that is related to the prestige or respect that China is demanding. It can be argued that the negotiation offered to China an opportunity to maintain status quo and not be seen as the country that had to give up on its interests.

The terms of the trade deal show that both the United States and China have managed to be sucessful in attaining some of their goals with respect to the trade status quo with each other. The United States’ companies get more access to the Chinese markets and greater protection for intellectual property (IP) rights, technology transfer, and currency practices (Wong, et al., 2020). China is also committed to buying an $200 billion worth of American goods and services by 2021 as an additional purchase of American products and also to ease some tariffs it on American products. These terms work in the favour of the United States. At the same time, with the halt on the rising of tariffs, China manages to save face by maintaining status quo. At the same time, China is also able to export more to the United States which is essential for its manufacturing sector because the United States is its biggest market.

The Chinese concessions to the United States in the greater protection for intellectual property (IP) rights, technology transfer, and currency practices, have been considered to be concessions that were not hard for China to made because it was already in the process of developing these policies before the Trump Presidency for attracting foreign investment (Lee, 2020). Therefore, China will not be under the perception that the trade deal represents losses for them. Similarly, the United States too has managed to receive favourable terms under the trade deal. Therefore, it can be said that both parties have met each other half way and have built bridges so as to find solutions that are to the advantage of both parties.

Conclusion

The US-China trade agreement is an example of a negotiation process where the absence of a preferable BATNA aided the negotiation process as both parties wanted to avoid the next best alternative, which was no deal with each other. This would have led to increasing tariff war, which was not to the benefit of either party. The negotiation process demonstrates some elements of the win-win process because there are advantages to both parties through this trade deal. Neither party had to compromise significantly to achieve the trade deal. Even the concessions that China gave to the United States are of the nature that China has been working to incorporate in its policy for some years now. Culturally, the concept of saving face is one point that was made particularly by the Chinese side and it appears to have been accepted by the other side because status quo has been maintained.

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