Vito Corleone in The Godfather famously made an “offer he can’t refuse” when “asking” for a movie part for his godson from a film producer. It worked. Why? The film producer’s alternative, or Plan B, to refusing: death. That’s powerful leverage!
A negotiation threat is simply a very aggressive exercise of leverage with the message “accept this offer or I will make your Plan B really, really bad!” Since the producer knew the Godfather had the credibility and means to make good on the threat, it was effective.
So are President Trump’s threats to impose tariffs on Mexico and Canada effective? It’s initially crucial to research, as described in Part One last week, the person’s history of making such threats and evaluate if they have consistently followed through – or not. Based on my research for my book The Real Trump Deal: An Eye-Opening Look at How He Really Negotiates, I concluded that Trump sometimes followed through but often did not. His threats were not consistently reliable or credible. They are less effective as a result.
But that’s not the end of the analysis. Three additional factors must be evaluated, each related to negotiation leverage, and each with lessons for all negotiators dealing with threats (or considering using them).
1. Ability to Carry Out the Threat
My dad at 13 was a skinny little kid who was often picked on by some bullies in his neighborhood. He could have threatened those bullies at the time, but they would have just laughed. It would have been the classic empty threat – no ability to follow through.
That changed after my dad learned to box and became a Golden Gloves boxer. He then could consistently and reliably threaten those bullies back – and could carry out his threats. He did so, ultimately clocking one of them when they started up again. They stopped bothering him.
U.S. Presidents have far-reaching legal and executive authority and discretion to impose tariffs on countries they deem in violation of trade laws. Democratic and Republican presidents have exercised this authority, and few dispute this ability.
Can your counterpart carry out their threat? Trump can, on tariffs. This must also be considered.
2. Risk involved in saying “no”
Will Trump pull the trigger and impose 25% tariffs on Canada and/or Mexico, as he has threatened? Let’s say you’re the leader of Mexico or Canada and you figure – based on Trump’s history of inconsistently following through on his threats – it’s a 50/50 chance he’ll actually do it. Do you take this risk? It would be economically devastating to your country if he did.
If it’s 50/50 but the risk is a tanked economy, you try to negotiate a deal. But you factor in the 50/50 chance and give up a lot less than you would if you felt there was a 90% chance of Trump following through.
That’s what happened a month ago, when both Canada and Mexico made minor concessions to get a 30-day respite from U.S. tariffs.
3. Trump’s Alternative or Plan B to Following Through
A credible threat focuses on your really bad Plan B if you don’t accept.
But what about their Plan B? The peace between the U.S. and the Soviet Union during the Cold War was predicated on Mutual Assured Destruction, or MAD.
The U.S. threatened the Soviets with nuclear destruction – and the Soviets threatened the U.S. with nuclear destruction. Because both threats were credible, etc., and because both parties’ Plan Bs were horrible, neither side carried it out.
Canada and Mexico are the U.S.’s two biggest trading partners. If the U.S imposes 25% tariffs on both, it will devastate their economies.
But it will also significantly harm the U.S. economy as they’ve each threatened to retaliate with tariffs on U.S. goods. A mutually destructive trade war would ensue. That’s the U.S.’s Plan B. And that’s not good for the U.S. or Trump.
Bottom line: analyze your Plan B AND their Plan B in assessing the effectiveness of threats.
Latz’s Lesson: Trump has the power to carry out his tariff threats – and the resulting risk to Mexico and Canada is great. But a trade war would be mutually destructive as everyone has a bad Plan B. So, it’s likely Trump will get more minor concessions in this next round and then call it a “win.” Otherwise, his threats will result in a classic lose-lose.
* Marty Latz is the founder of Latz Negotiation, a national negotiation training and consulting company that helps individuals and organizations achieve better results with best practices based on the experts’ research. He can be reached at 480.951.3222 or Marty@LatzNegotiation.com.