Koshiek Karan: Countering Trump – the art of a trade war

Key topics.Tariffs are Trump's short-term negotiation tool, not permanent policy.Markets panic, but history shows tariffs often lead to quick backpedalling.Long-term economic damage from tariffs is real, but temporary chaos offers opportunities..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here..The seventh BizNews Conference, BNC#7, is to be held in Hermanus from March 11 to 13, 2025. The 2025 BizNews Conference is designed to provide an excellent opportunity for members of the BizNews community to interact directly with the keynote speakers, old (and new) friends from previous BNC events – and to interact with members of the BizNews team. Register for BNC#7 here..If you prefer WhatsApp for updates, sign up to the BizNews channel here..By Koshiek Karan.By now "TRADE WAR!" is violently plastered across mainstream financial media. It's the most recent crime scene to trigger a widespread market sell-off. Canada, China, & Mexico are first victims on a fast-growing hit list. Numbers are grisly – $800bn wiped off crypto markets in just 24 hours. The largest single-day crypto liquidation in history! The Nasdaq now hovers just a few points away from official correction territory. NVIDIA erased nearly one trillion dollars of market cap in a few weeks. President Trump is now notoriously branded a financial market killer on the loose!.Except – the screams are fake, victims are mannequins & only the uninitiated are truly spooked by gallons of fake blood. Catching this falling knife would be lethal – if it was actually sharp enough! Welcome to the art of the deal!.above is an example of a scary headline currently giving your wealth manager an aneurysm .Back in 1987, Random House published "Trump: the Art of the Deal" – a book co-authored by Donald Trump & Tony Schwartz. It went on to spend 13 weeks at #1 on the New York Times Bestseller list & remained on the list for 48 weeks. This single book flipped a cascade of dominoes resulting in Trump becoming President of the United States… twice..The principle of "maximum pressure" as a negotiation tool has repeatedly informed every one of his major business & political negotiations. Critically important to remember here, he views tariffs only as a temporary pressure tool & not as permanent policy. .Here's a play-by-play on how he creates short-term pressure & leverages the threat of action to influence trade negotiations:.Step #1: Make the first move, start aggressive & shock your opponents ."My style of deal-making is quite simple and straightforward. I aim very high, and then I just keep pushing and pushing and pushing to get what I'm after.".In 2017, Trump called out Kim Jong-Un as "little rocket man" – completely unprovoked. Yet by 2018, they joined at the first-ever US/ North Korea diplomatic summit. Slapping a list of countries with tariffs is a classic, extreme first move..Step #2: Create uncertainty to gain negotiation leverage ."The worst thing you can possibly do in a deal is seem desperate to make it. That makes the other guy smell blood, and then you're dead. The best thing you can do is deal from strength and leverage your advantages.".In 2018, Trump repeatedly threatened China with escalating tariffs. The only problem – nobody had any idea what this actually meant. He constantly see-sawed between being "very happy without a deal" to "we are pretty close to a deal". Chaos is incredibly difficult to predict or respond to. Eventually China agreed to a Phase One deal in 2020 & committed to increased US agricultural purchases..Threats to Canada & Mexico aren't new either. In 2017 Trump declared NAFTA as the "worst trade deal ever!". This led to the USMCA deal, giving the US better terms on auto production & labour standards. .Read more: Steenhuisen says cool heads can turn Trump/ANC vitriol from crisis to a benefit.Step #3: Start high, push hard & leave room to settle .If you want to buy something, it's not a bad idea to make your initial offer so low that it's insulting. This applies to buying a car, negotiating a salary, or buying a billion-dollar building. You figure out what the seller's lowest price is and then try to go even lower.".This tactic was used excessively when he bought the Commodore Hotel in the 1980s (now Grand Hyatt NYC) & Trump Towers. He pushed hard for zoning concessions, tax breaks & special permits. He didn't get everything he asked for but did end up with a sweetheart deal. If history is anything to go by – the 25% tariffs on Mexico & Canada won't last too long. .Step #4: Once pressure works, negotiate a deal & move on."You can't con people, at least not for long. You can create excitement, you can do wonderful promotion and get all kinds of press, and you can throw in a little hyperbole. But if you don't deliver the goods, people will eventually catch on.".This is the crux of the dealmaking playbook. Tariffs aren't a long term play, they end up hurting US consumers the most. You trigger inflation, ruin global economic pricing advantages & in the end – the consumer always pays the tariff. Trump deliberately reiterates "short-term pain, long-term gain" in White House briefings..Once again, this strategy has already played out with China in 2020 (Phase One deal), Canada & Mexico in 2018 & Europe in 2018. Once tariffs truly started threatening the US, he quickly scaled back his position from hostile to conciliatory. .Read more: 🔒 Trump signs order to create US sovereign wealth fund.So are tariffs any good as a long-term policy tool?.From a US perspective, they happen to be a terrible tool to foster any meaningful economic & political relations. The US trade deficit is currently at all time highs. Slapping on tariffs & strengthening the US dollar defeats the goal of closing the deficit. US exports become more expensive, US imports become cheaper. .Additionally, you're stuck with expensive items coming into the country, disrupted supply chains & strained international relations. .Tariffs used purely as a short-term negotiating tool happen to be a lot less damaging. .understandably, not everyone is a fan of the "threaten a tariff" negotiating strategy.So this is just one big circus & a great opportunity to capitalize on fear?.Prolonged tariffs will likely slip both Canada & Mexico into a recession. Based on President Trump's track record – he never fully executes on the most painful tariffs, only uses them as leverage. In short – everyone ends up worse off the longer this goes on & there really is no incentive to prolong a "trade war". .So don't be surprised when everyone gets together pretty soon to talk this over & markets suddenly act surprised at this over-reaction..Here's what the first trade war with China looked like in 2018 – it was a much bigger deal in the media than it actually was in the markets. .In the midst of chaos, there is also opportunity. I'm definitely unloading heavy clips of dry powder buying up this dip. .Call me when there's a real murder in the markets..Read also:.BN Briefing: Steenhuisen on Trump/ANC; DRC; Palantir; DeepSeekTrump threatens to cut US aid over SA expropriation lawTrump, EWC, private property rights – how SA got so out of step with the world.*Koshiek Karan is the founder & CEO of financial media company BankerX. He is an ex-investment banker & entrepreneur with extensive experience in capital markets & trading: koshiek@bankerx.co.za

Koshiek Karan: Countering Trump – the art of a trade war

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