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Two Brinkmanship Games and a Possible Third

Some historians give Adlai Stevenson credit for inventing the word “brinkmanship” as part of his criticism of US foreign policy under Dulles, who said that “if you are scared of going to the brink, you lost.” But surely we can agree that the tactic is as old as civilization.  

The idea is you take the issue to the very edge, risking a significant confrontation, to force a deal, is the way it may seem. The Cuban Missile Crisis is the classic example. Kennedy’s quarantine of Cuba was an act of war, but he dared Khrushchev to risk a direct confrontation with the US if he tried running it.

Often, it seems brinkmanship games can be seen from a different perspective as escalation ladders. In a conflict, the stronger side made try to escalate the issue. If the weaker side matches, it does so again. This may be repeated until a rung is reached that the other cannot or will not take. There are feints, bluffs, and other ploys.

The UK government seems to be engaged in a brinkmanship game with the EU and the House of Commons. She is authorized to seek a new deal on the backstop and has been advised against not securing an agreement. The EC has made it clear this is a non-starter. It refuses to re-open the 18-month negotiated settlement and has demonstrated strong cohesiveness in insisting on the open-ended backstop. The strategy may be to bring the UK to the brink of exiting without a Withdrawal Agreement and count on Parliament or the EC blinking, which in this case, means softening their positions.

Thomas Schelling, who shared a Nobel Prize for his work in game theory, may have called this a version of “burning the bridge.” Consider two young people playing what in “chicken.” They are to drive their cars at each other, and the first one to turn is ostensibly the “chicken.” If you were silly enough to play, how could you best convince your equally silly friend that could would not turn first? Schelling suggested throwing your steering wheel out the window. Purposely limited your options, forces the other to act.  

In brinkmanship, you give your adversary little choice but to back down or face even greater potential difficulty. In the face of no alternative between the much-unloved and rejected negotiated Withdrawal Bill and a no-deal exit, something will have to give. The Leave camp wants to avoid a second referendum. No one wants to get blamed for the economic disruption of the UK leaving the EU without an agreement. A later and softer exit still seems like the most likely scenario.

A second brinkmanship game is being played out in the US and Chinese trade talks. The brink is March 1 when the current freeze on tariff actions end. Even though the US feels it has been wronged, it is perceived as the aggressor and the one making resorting to tariffs and placing demands on China that go beyond enforcing WTO rules. There have been a couple of rounds of talks, but there has been no major breakthrough, nor should one be expected until closer to the brink.

The key event before the brink has to be another meeting between the two presidents. Only a last-minute deal means that each side pressed the other as far as they could, which plays well to the domestic stakeholders. The ball is in the US court.  How much is securing a meaningful reduction in the bilateral trade imbalance worthwhile setting up a framework to monitor and verify other structural reforms, including intellectual property rights? China has repeatedly offered to close the bilateral trade imbalance, though whether this is challenged at the WTO by China’s other trading partners would have to be seen. Yet it has been rejected by the US.

Several past US Administrations had regular bilateral meetings to talk about strategic and economic issues. The Trump Administration has not continued this practice, but something like it is bound to resume some point. If in early March, an agreement is announced for China to buy more US goods, especially agricultural products, and energy, and for a verification process to involve regular meetings was all the drama worth it?

A third game of brinkmanship may be playing out in Venezuela. In the global chessboard, the US had long seen the Caribbean as its pond. Cuba was an exception, but the US signaled that it was willing to go to war to ensure that adversaries do not have nuclear weapons there. Venezuela had traditionally been well-entrenched in the US sphere, but that changed with Chavez and continued with Maduro. The unpopularity and corruption of the Maduro government have given rise to an opposition that can be built up that the US and many other countries recognize now or shortly will as the legitimate government.

This has forced Russia and China to come to Maduro’s support. It seems to be a losing proposition, barring turning it into a civil war. China and Russia do not want to lose this strategically located irritant to the US. The US seized an opportunity to take back a piece on the chessboard that had slipped away. It raised the cost to China and Russia to try to hold it.  It does not reach the level of the Cuban Missile Crisis, but the drama and the brinkmanship tactics are vaguely related.

Full story here
Marc Chandler
He is Global Head of Currency Strategy of Brown Brothers Harriman (BBH). He has been covering the global capital markets in one fashion or another for 25 years, working at economic consulting firms and global investment banks. He regularly appears on CNBC and has spoken for the Foreign Policy Association. In addition to being quoted in the financial press daily, Chandler has been published in the Financial Times, Foreign Affairs, and the Washington Post. BBH provides specialist services and innovative solutions to many Swiss asset managers that include a global custody network of close to 100 markets, accounting, administration, securities lending, foreign exchange, cash management and brokerage services. Feel free to contact the Zurich office of BBH
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