Tag Archives: Integrated Bargaining

Soy Beans: Wherein DB goes off again on her soy beans while readers roll their eyes.

soy beans

A note to patient and loving readers: These are soy beans.  I know, I’ve regaled you with soy beans before.  However, please allow me some latitude to discuss them once again.  The blessed little beans are illustrative of many issues related to the mis-administration of the Angry Man Baby occupying the White House and his minions.  

Let’s begin with what we do with soy beans, and please let’s get past the soy sauce and soy milk bit.  A sixty pound bushel of soy beans will yield about 11 pounds of crude soy bean oil and 47 pounds of soy bean meal.  The beans are about 18% oil and 38% protein.  Trust me, this is good — and it’s especially good for animal feed.  [NCsoy] Thus, most of the commercial use of soy beans goes for animal feed and a smaller amount goes for human consumption wherein we get back to the soy sauce, soy milk, soy flour, and our tofu.  But wait! There are other commercial and industrial uses for soy by-products as well and here’s a partial list:  Biodiesel fuel; biocomposites creating everything from countertops  to furniture to flooring to particle board and even to recycled newspaper. A person could sit at a kitchen counter containing soy while reading a newspaper containing soy, printed with soy ink, while the toddler marks the kitchen wall with a soy based crayon.  A person could escape all this because there are hydraulic fluids and lubricants which are soy based, and even automobile upholstery can be manufactured with soy containing elements.  In short, DB rants about soy beans because they can be environmentally friendly little Glycine Max’s which don’t have just a market, but have several markets — agricultural, commercial, and industrial.

Who grows these things?  We do. The United States of America leads the world in soy bean production with about 108 million metric tons per year.  Brazil produces about 86.8 million metric tons annually.  Argentina grows approximately 53.4 metric tons per year, and China adds another 12.2 million metric tons annually.  India comes in around 5th place in world production with 10.5 million metric tons, then Paraguay chips in another 10 million.  Canada produces approximately 6 million metric tons, Ukraine adds another 3.9 million, and Bolivia grows 3.3 million metric tons.  Last but not least Uruguay comes in with annual production of 3.2 million metric tons.  [WorldAtlas] Notice something about the names of the countries on this list?

One thing that pops out is that one country, China, has been singled out as a competitor, while the others are traditional American allies in diplomatic terms.  Remember that thing about integrated and distributive bargaining?  Recall that integrated bargaining requires negotiators (on trade and other matters) to consider their mutual interests along with the issues upon which they have issues to resolve.  Hold this thought.

Now consider Farmer Jones in eastern Nebraska who grows soy beans and sells his 60 pound bushels to a grain dealer — in dollars.  The financial markets kick in, as with every other commodity there is “future trading.”  At the moment, China, the largest soy bean importer has reduced its purchases of US soy beans, the price of soy beans got so cheap that other countries started to increase their orders from American dealers.  [Bloomberg] Sounds good so far, but caveat emptor.  This puts soy bean values at “fire sale” levels for our allies in Brazil, Argentina, India, Paraguay, Canada, Ukraine, Bolivia, and Uruguay.  So, let’s talk about Brazil for a second or two.

Back in 2011 the US and Brazil signed an Agreement on Trade and Economic Development.  Here comes that integrated bargaining component again, because the framework isn’t just about who sells what individual products to whom, but how the two nations can expand direct trade and investment relationships, incorporating reducing trade barriers and sharing innovations.  It appears to be working, at least if we note the report from the US Trade Representative: “U.S. goods and services trade with Brazil totaled an estimated $88.2 billion in 2016. Exports were $55.2 billion; imports were $33.0 billion. The U.S. goods and services trade surplus with Brazil was $22.3 billion in 2016.”   And, there’s some other nice bits:

The top export categories (2-digit HS) in 2016 were: mineral fuels ($5.0 billion), aircraft ($4.8 billion), machinery ($3.6 billion), electrical machinery ($3.1 billion), and optical and medical instruments ($1.7 billion).

U.S. total exports of agricultural products to Brazil totaled $899 million in 2016. Leading domestic export categories include: wheat ($316 million), prepared food ($54 million), dairy products ($47 million), cotton ($47 million), and feeds & fodders nesoi ($42 million).

U.S. exports of services to Brazil were an estimated $24.9 billion in 2016, 11.4% ($3.2 billion) less than 2015, but 235% greater than 2006 levels.  Leading services exports from the U.S. to Brazil, in 2015, were in the travel, transport, and telecommunications, computer, and information services sectors. [USTR]

Thus, the Brazilians are exchanging their Brazilian reals (current exchange rate 0.26/dollar) to buy US mineral fuels, electrical machinery, processed food, medical equipment, telecommunications systems, computer gear, and IT services from us, among other trade goods and services.  Now, ask the question: Do we really want their soy beans on the market at fire sale prices earning fewer “reals” when we want them to exchange those “reals” into US dollars to buy travel, computer, and IT services?  Fuel? Medical equipment? Aircraft? Our agricultural products? At what point does our “winning” come back to haunt us?

Or, consider this from our competitor’s side of the frame. China.  Again, with our little soy beans:

While the Asian nation is targeting a slew of American farm goods in this round of taxes, soybeans are the top agricultural commodity the country imports from the U.S. by far. The oilseed, used to make cooking oil and animal feed, accounts for about 60 percent of the U.S.’s $20 billion of agricultural exports to China. Before the tariffs were announced, a study by the University of Tennessee forecast that a 25 percent duty would spark a drop in American shipments of at least $4.5 billion. Brazil, already the world’s biggest soybean shipper, is set to be the biggest winner, filling the gap left by the U. [Bloomberg]

Wow, there comes Brazil again! Now the Chinese are exchanging their yuan (current exchange rate 0.15/US dollar) for Brazilian reals in order to buy their Brazilian soy beans.  And those grain deals? — they aren’t being made with US grain dealers in dollars, they are being made using yuan/reals.  Lower demand for the US dollar? There’s a delicate balancing act playing out in international currency markets every day. In our integrated system of international trade the old distributive system of winners and losers doesn’t serve very well. The agricultural market is connected to the futures market, the futures market is connected to the commodities market, the commodities markets are connected to the financial markets, the financial markets are connected to the currency markets… “foot bone connected to ankle bone, ankle to leg, leg to hip, hip to back bone,” right up the economic body with the old song as metaphor for the global economy.

And, we haven’t even talked about whether or not we want China to pick up more of our national treasuries to keep financial markets steady?  So, this is why DB gets excited about her soy beans, and other components of US trade and economic development.  It’s not that I am fascinated with soy sauce on my chow mein, or even on my potstickers, but because the little beans are illustrative of wider, larger, economic issues which seem much more important than whether my soy sauce is embellished with hot peppers.

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Distributive Bargaining, or How Not To Make Friends and Influence People

Okay, we know that our baby boy in the White House isn’t exactly one to pore over reports, briefs, and academic papers, but his behavior in several realms is beginning to attract notice from those who do — especially people who muse about such things as distributive bargaining.  This first drew publicity back in August 2017 when experts were dismayed at his use of distributive bargaining in inappropriate settings. [HuffPo] Harken back to the early days of baby boy’s dealings with Mexico and Australia, over The Wall and refugees.

“Nobody wants to feel taken. Effective negotiators recognize that once we understand each other’s underlying interests, we can truly invent options for mutual gain,” said Shapiro, who wrote the book Negotiating the Nonnegotiable: How to Resolve Your Most Emotionally Charged Conflicts. “These leaders behind closed doors need to feel comfortable sharing information with one another so they can start figuring out options that address each of their constituency’s interests.”

Mexico didn’t want to feel “taken” by The Wall, nor did Australia want to be “taken” by being strong armed into breaking a U.S-Australian deal on refugees.  Unfortunately, baby boy’s negotiation style fits into the classic distributive bargaining definition:

‘The ultimate aim, under distributive bargaining approach, is not to come to a win-win kind of situation but that one side wins as much they can. Both parties will try to get the maximum share from the asset or resource which needs to be distributed.”[EconTimes]

Nothing creates instant impasse quite so well as setting out intractable positions and demanding one side accept terms which are in essence a loss in order to appease the more bellicose of the two bargainers. Baby boy is the more bellicose of the bargainers.  At this point, it’s relevant to address the difference between distributive bargaining and integrated bargaining.

In distributive bargaining the Big Point is the Walk Away Position.  That would be the point at which I would walk away from the car dealership if the make, model, and price of the vehicle in question wasn’t what comported with my financial situation and personal needs.  After all there are other dealerships, and I can safely ignore my other competitors.  If I were to consider my competition I’d want to engage in integrative bargaining, also sometimes called productive bargaining.

 “In integrative bargaining, each party works at understanding what the other really needs out of the negotiation. This, in turn, depends on being able to question the other party about their interests, or otherwise discover what they really are (i.e. it is possible for one party to lead into this process even if the other party initially is not cooperative). In integrative bargaining, parties will tend to avoid taking arbitrary “positions,” while still being assertive about their needs. This approach is clearly distinguishable from “distributive” or “positional” bargaining, in which the usual sequence is for one party to start unrealistically “high” and the other to start low, with successive offers narrowing the difference — without either party really understanding what the other seeks to achieve.” [BICK]

While we could say distributive bargaining is product driven, we could assert that integrated bargaining is process driven.  This is a bit too simplistic, but then our baby boy on Pennsylvania Avenue isn’t all that interested in complicated, nuanced, matters, so let’s keep it simple for him.

Much integrated bargaining was done during the negotiating process for the Trans Pacific Partnership — which had its problems, however being intractable and simplistic wasn’t one.  The bargaining also assumed there were not one but several layers and levels of interests involved.  The US wanted to get a handle on Chinese statutes on intellectual property rights. The Chinese were interested in involvement in a regional trade scheme.  The US was interested in Chinese purchases of US debt, thus keeping interest rates under control.  The Japanese were interested in securing their interests in the Pacific region with both the US and the Chinese, and with the Australians.  The Australians were (are) interested in securing markets for goods and services while maintaining strong diplomatic ties to western Europe and the United States.  And so on.  There were 12 nations in on the negotiations.  So, baby boy blew it up.  [BBC] See also: WaPo April 2017.

On the third day of his presidency, Trump signs an executive order withdrawing the United States from the Trans-Pacific Partnership. “Everyone knows what that means right? We’ve been talking about this for a long time,” Trump says as he signs the order. “Great thing for the American worker, what we just did.”  [WaPo]

Not. So. Fast.  First, on July 14, 2017 those 11 other nations which had been involved in the integrated bargaining over the TPP terms signed an agreement without the US.  They get what they wanted…we get to twiddle our thumbs?  And we’ve still not come to any agreement with the Chinese about their handling of intellectual property rights.  Punditty types on my television set are wringing hands and clutching pearls as the US and China descend into trade/tariff war territory — “but but but what about the intellectual property rights — the real issue between the two countries? — they moan into their microphones. What about it?

When Baby Boy shifted US bargaining from integrated to distributive negotiations he shaved off the need to consider the needs of our competitors and our interest in dealing with the issues on a multi-layered basis, and went straight for the Winner Takes All distributive bargaining model. So, if we’re wondering what’s going wrong in regard to our trade relations with our two largest markets, Canada and Mexico, and our problems with China, and our issues with the European Union… look no further than Baby Boy and his one size fits nothing distributive bargaining model.


More information at:

Economic Times, Definition of Distributive Bargaining.  Beyond Intractability, Distributive Bargaining. University of Colorado-Boulder, Distributive Bargaining.  Harvard PON Distributive Bargaining Strategies.  Small Business Chronicle, Distributive and Integrative Bargaining.

 

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