Losing Face & Trade Negotiations on May 13, 2019

May 13, 2019, by John Norris

In graduate school, I did a case study for a marketing class on selling farm equipment in China. If I remember correctly, which I believe I do, I ultimately recommended conducting a massive charm offense on the necessary cadres, at all levels, and selling our products at their variable costs until ‘we’ had achieved some solid footing or market share. The class was not amused. What about overhead? What about profit margins? What about this or that accepted business principle? How could I knowingly adopt a business plan which would, for all intents and purposes, lose money?

All of it was valid.

Then, one of the Chinese nationals raised her hand: “why not just give the equipment to the government for free and let it be in charge of distribution?” Hmm. To be sure, I had thought of that, but decided against it for a number of reasons. Chief among them was in keeping with the homespun adage: “why buy the cow when you can get the milk for free?”

It is one thing to give away a tractor or two. It is quite another to give away your product line for an unspecified time and in uncertain quantities. When I responded in this manner, she asked me again: “why not just give the equipment to the government for free and let it be in charge of distribution?” Okay. I phrased my response a little differently, but the thought process was the same. Would you care to guess what she said next? I will give you one choice, and I decided to ‘back down,’ as it were, at that point with the old: “I suppose we will have to agree to disagree on this one.”

Although I forget her name, I do remember she was a good student. She understood my point, but I also knew she wasn’t going to bend, let alone break. Even if she had wanted to do so, she couldn’t. It would have been too big a ‘loss of face’ for one of the Chinese students to back down to another student, particularly an American in front of 30 others and her professor…with ‘in front of 30 others and her professor’ being particularly important.

This much I learned in an undergraduate class I took on the history of China, the concept and importance of face (or mianzi). In a particular good synoptic article on the subject at internations.org a definition of the term and some ‘face losing’ situations are:

 

The concept of face (mianzi) in Chinese culture is a complex one. It can perhaps be most closely defined as “dignity” or “prestige”, but no translation can aptly cover all its fine nuances. It’s easy for a foreigner to unwittingly cause an embarrassing situation. One of the worst things that can happen to someone in Chinese culture is to “lose” face. A Chinese idiom goes, “Men can’t live without face, trees can’t live without bark.”

The following are some face-losing situations, which you should avoid if at all possible:

  • Revealing someone’s lack of knowledge or ability, e.g. that they have poor English skills
  • Calling someone out on a lie
  • Not showing the proper deference to one’s elders or superiors
  • Turning down an invitation outright. It’s better to deflect with noncommittal phrases such as “Maybe” or “Let’s talk about it later”.
  • Openly criticizing, challenging, or disagreeing with someone. This is especially embarrassing if the person’s superiors are present.
  • Being openly and publicly angry at someone. This actually causes you to lose face as well, because you are openly showing a strong emotion in public, instead of maintaining a calm outward demeanor, as is proper.”

 

 

Now, if I can pull this up on the Internet without difficulty and can remember shadows of a long-ago college course, it would seem everyone in Washington would be well-versed on the matter: how to negotiate or deal with the Chinese. We might be able to publicly browbeat other countries, or even cultures, into submission with American economic might, but not so China.

While we might view their concept of ‘face’ as being overly sensitive, I am certain other people might take exception with some of what passes for good manners in our culture. Heck, we can’t even decide on that ourselves. Apparently, holding open a door for a lady is now a questionable thing to do in some regions, as is even calling a woman a lady.

With this said, on May 5, the President sent out two tweets on the trade situation. I will combine them here, and in verbatim:

“For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods. These payments are partially responsible for our great economic results. The 10% will go up to 25% on Friday. 325 Billions Dollars…. ….of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!”

From a Chinese perspective, I would assume, much of this was/is so much laowai boorishness, which can be forgivable. However, the last two lines were deal killers for last week’s meetings in Washington. First, “most borne by China” might suggest the Americans had gotten the better of the Chinese leadership. Second, “…but too slowly, as they attempt to renegotiate” could suggest Chinese leadership is being dishonest. Even if the President is correct and these things are true, calling or pointing them out in such a public and improper way would be (and was) completely unacceptable for Beijing.

Even so, they still sent a contingent last week to go through with the meetings, understanding perfectly well nothing would come of them. It would have been another ‘lose of face,’ for both sides, to turn down the invitation to come to Washington.

I go through all of this for a reason: I sense everyone believes we will eventually hammer out a deal with Beijing on trade. With some exceptions, surprisingly few Americans seem to be taking issue with the Administration for these negotiations, even if they don’t like the President’s methods. After all, the Chinese do manipulate their currency, as it isn’t freely convertible and is pegged against the dollar (in some form or fashion). They don’t actively enforce international copyright/trademark laws and patents. Beijing subsidizes government-run companies, which is both completely understandable and kind of unfair. The list goes on, and I imagine even the Chinese comprehend ‘this time is a little different’ and they will have to do more than just give lip service to our demands, particularly on the copyright/trademark/patent protections.

They just aren’t going to let ‘us’ bully them on a global stage.

In the end, I am fully convinced ‘this too shall pass,’ as trade between our two countries is too important for both countries AND the global economy in general. However, it will pass more quickly if our negotiators and the President keep the trade discussions behind closed doors and the public comments somewhat saccharine. After all, the endgame is to get the Chinese to do something they don’t want to do. If we have to be more mindful to play the game according to their rules, then so be it.

We can win, if that is the correct word, but we have to let Beijing and Xi ‘save face’ in order to do so. I learned that back in 1992 with a heckuva less on the line than the current stakes. Laughingly, you know, I suppose if anyone in Washington were to read this criticism it would cause a loss of face, on so many levels. Go figure.

Here’s to an end to this carousel.

John Norris

 

 

The opinions expressed in this article are those of John Norris on May 13, 2019. They are subject to change without notice, and do NOT necessarily reflect the ideas of Oakworth Capital Bank or any other of its associates or members of its Board of Directors.