Negotiating by threat

People are saying that an Indiana corporation has decided to keep some of its workforce here in the US (instead of offshoring) after negotiating with the incoming Administration. The workers who might have lost their jobs are certainly grateful. 

But what about the next company considering offshoring operations? Modern supply chain management exists so that companies can do exactly that. And there are many companies and not all are located in states that the Administration holds dear. 

Moreover, why wouldn’t companies now threaten exit? Of course, they’ve done this for years in terms of relocating to other states or outside the country. But rarely have presidents intervened in such situations. 

And for good reason. These bilateral negotiations are fraught with opportunities for holdup and other nastiness. And what real leverage do presidents have in such situations unless they wield serious tariffs? They can offer incentives, of course, but that just means more future negotiations with others threatening exit. 

Perhaps the most interesting aspect is what it says about how this Administration will do business. Is everything a personalized deal? Witness the recent naming of Elaine Chao as Secretary of Transportation. 

It’s hard to maintain consistency in such situations. And even harder to keep it going when deals break down. Especially when it’s clear you are responsive to threats.