There are two concepts from negotiations and microeconomics that we should consider in light of the trade war: Best Alternative to a Negotiated Agreement (BATNA) and reserve price. So if you are the US, what is the reserve price (conditions) of an agreement with China 1/n
that will push you over the edge into making an agreement. Reserve price is typically used with labor and welfare. You're unemployed and unemployment insurance gives you 50% of what you were making before. What is your reserve price for labor that will draw you into working? 2/n
Do you need to return to work at a wage equal to previous wage? 70% or 120%? Now consider the US. Growth remains steady and solid if unspectacular. Wages are going up, decoupling is proceeding, and surprisingly, allies are waking up to the problems with China. 3/n
Couple this with what we now about China having a very weak economy and cheating continually on deals and I would argue the US should have a very high reserve price to draw it into making a deal. What benefits are we tangibly going to receive by agreeing to a low reserve 4/n
price (maybe only equal to what our trade relationship was with China before)? Then let's bring in BATNA? What are our alternatives absent a trade deal with China? Actually, as seen by the current state of the economy, decoupling, and other factors our alternative absent 5/n
a deal is actually pretty good. Yes, the costs aren't great and we'd prefer to do a deal but not any deal. I would go one step further and say if we engaged in things where we worked to help other countries receive decoupling benefits, TPP, and similar type of activities 6/n
Out BATNA would improve even more. All this seems to argue that we should only be making a deal with China at a really good reserve price and we should improve at the same time our alternatives assuming we don't reach a deal. Done
This latest thread was brought to you by what is now a 7 hour lay over in Tokyo due to a weather delay
