Negotiations 101

In negotiations, a classic strategy is to start with an extremely low bid when buying and an exceptionally high ask when selling. This approach ensures that when the parties settle on the desired number, both sides feel satisfied. While this tactic often appears humorous in movies and TV shows, it remains a widely used and effective tool today. We’re witnessing it in action with current tariff negotiations. President Trump employs this strategy by proposing excessively high tariff percentages, knowing that the public and affected countries are less likely to object if the final rate settles around 10%. For countries that are major manufacturers, initially facing tariffs of 30% or more, a 10% rate would seem like a relief. This move also serves as a broader strategy to address trade imbalances. High tariffs aim to pressure foreign governments into removing barriers that hinder U.S. companies from exporting goods and to curb subsidies that undermine American industries. A notable example is China’s solar panel industry, where heavy subsidies have historically allowed Chinese firms to dominate global markets, often at the expense of U.S. competitors.

Stock Market

The stock market functions as a prediction and voting mechanism as much as a fundamental weighing tool. Recent volatility in response to tariff negotiations reveals two key insights. First, markets are unaccustomed to a president negotiating trade issues so publicly. Historically, such discussions—whether about tariffs or foreign policy, as seen in past U.S.-Ukraine interactions—were kept private to maintain market stability. By conducting these negotiations openly, Trump signals the seriousness of his proposals, impacting both the stock and bond markets. For instance, the S&P 500 recently tested support levels around 5,000, while 30-year Treasury yields approached 5%, reflecting investor unease. This volatility underscores a broader truth: the capacity to endure uncertainty is critical to investment performance for both individuals and companies. Those familiar with negotiation tactics understand the value of patience before making drastic decisions on pricing or manufacturing. For example, Apple CEO Tim Cook recently emphasized the challenges of relocating iPhone production from China, citing the unparalleled quality and scale of its workforce. This statement, paired with reports that tech and semiconductor industries may be exempt from reciprocal tariffs, suggests strategic positioning to mitigate tariff impacts.

Carveouts, Exemptions, and the End Game

Elon Musk’s recent proposal for zero tariffs between the EU and the U.S. offers a potential olive branch to European policymakers, many of whom are perceived as disconnected from business realities. While a complete elimination of tariffs may not materialize, Musk’s suggestion could soften the EU’s aggressive regulatory stance on AI and big tech, which has often manifested in burdensome taxes and compliance requirements. This aligns with a broader goal of fostering freer trade while protecting U.S. interests. The end game of these negotiations extends beyond tariffs alone. It’s about reshaping global trade dynamics to prioritize American innovation and economic resilience. By leveraging high initial tariff threats, the U.S. aims to secure concessions that level the playing field—whether through reduced foreign subsidies, fewer export barriers, or reciprocal market access. For instance, exemptions for tech and chips signal a focus on preserving U.S. leadership in critical industries like AI and semiconductors, where supply chain dependencies on countries like China pose strategic risks. Moreover, the public nature of these negotiations serves a dual purpose: it pressures foreign counterparts to act swiftly while rallying domestic support for policies that bolster local manufacturing and job creation. The risk, however, lies in prolonged uncertainty, which could dampen investor confidence and disrupt global supply chains. If successful, the outcome could usher in a new era of trade agreements that balance open markets with robust protections for American workers and industries. If miscalculated, it might escalate into trade wars that harm consumers and businesses alike. The stakes are high, but the strategy banks on the belief that bold moves now will yield long-term economic strength.