Deals and Diplomacy

President Elect Donald Trump has finally announced his nominee for the position of Secretary of State. His pick is Rex Tillerson, the CEO of Exxon-Mobil, one of the largest energy companies on the planet. I am just now learning about Mr. Tillerson’s background and capabilities, as are we all. The reason President Elect Trump selected Tillerson is because he “does deals, great deals in Russia”. And it is true, Mr. Tillerson has done billions of dollars worth of deals in Russia, often negotiating directly with Russian President Vladimir Putin. But he was doing deals in the capacity of a private citizen working for a private sector company. “I’m not here to represent the United States government’s interest. I’m not here to defend it nor am I here to criticize it. That’s not what I do—I’m a businessman,” Mr. Tillerson said.

But his role as Secretary of State will be very different. He will be representing the interests of the United States and implementing the policies of his boss, Mr. Trump. Regarding Russia’s actions in Crimea and Ukraine, Mr. Tillerson said, “I don’t agree with everything he’s (Putin’s) doing. I don’t agree with everything a lot of leaders are doing. But he understands that I am a businessman.“ But the next time he meets Mr. Putin he will not be a businessman.

There is a big difference between deal making and diplomacy. Mr. Tillerson is known as a tough negotiator “more likely to make take-it-or-leave-it offers to foreign leaders than others,” according to a source quoted by the Wall Street Journal. Take it or leave it means a whole different thing when you are dealing with sovereign entities.

Let me explain.

Deals

I have always said that you can make very good deals with very bad assets and absolutely horrible deals with very good assets. One deal that I worked on a while back was for a company that bought defaulted credit card receivables. These are very bad assets. Not only are the card holders not paying interest and principal to the bank that issued the credit cards, the banks have given up trying to collect these debts and written off their investments. But my client would buy these receivables, often for pennies on the dollar. But if the client could buy the credit card receivable for three cents from the bank and collect five cents from the card holder, he would have made a very good deal (the card holder also gets a good deal by extinguishing the debt at five cents on the dollar, but his credit will still stink and he will have to pay tax on the debt forgiveness). In fact, the client bought millions upon millions of credit card receivables and made a good steady business at it because his history of how much could be collected on such bad assets meant he knew what to pay for those bad assets in order to generate a profit. If the bank asked too much for the defaulted receivables, the client would say, “here is my offer. Take it or leave it.”

The other side of the case is also true. In deal making, if you are not willing to walk away you will be taken to the cleaners. If you don’t take the deal, no harm no foul. Next week or next month or next year you can go back negotiate a different deal with the same counterparts. Its just business (or as we say here in Texas, bidness).

Diplomacy

Diplomacy is very different. Diplomatic negotiations may indeed come down to take it or leave it. But there are consequences to breaking off negotiations. And those consequences can be very serious. Lives are at stake.

You know, I feel sorry for John Kerry. It is not that he is a bad Secretary of State or a good one. It is that we will never know. Kerry has the unenviable task of representing the feckless Obama foreign policy. Much of the chaos we see around the world is the result of the Obama administration’s disengagement in foreign policy. When you disengage in diplomatic circles bad things begin to happen. Like Syrian refugees. Like Libyan chaos. Like fortified islands in the South China Sea. And when your adversaries know you must make a deal (and with a self-imposed deadline) you end up with a very bad nuclear deal.

When international relations fail, it can take a long time to heal the wounds. Broken promises are remembered. You cannot walk away from NATO in an attempt to get the member states to pay their fair share and then put it back together like a Lego toy. It would take a generation to rebuild an alliance that could keep peace in Europe for another 70 years. An 'America first' foreign policy could leave our allies exposed to malefactors that are growing stronger as a result of the current administration's leading from behind. The people of Latvia, Lithuania and Estonia deserve better than to be pawns in a diplomatic game that wagers their freedom and independence as a part of a negotiating strategy to get France and Germany to increase the defense spending as required under the NATO agreement.

We don’t yet know what President Elect Trump’s foreign policy will look like or what Mr. Tillerson will be able to achieve over the next four years. Mr. Tillerson obviously has the skills to run a huge corporation and is a great dealmaker. But he will need a different mind set when he takes up his post as Secretary of State. He will no longer be a businessman. He will be representing America.

I hope he can be strong when dealing with Putin, Xi and others. From his statements he clearly knows the different role that a businessman plays, and hopefully he has the insight to see how his new role will differ. I hope he realizes that his responsibility is to the American people and that he gives good counsel to his new boss (and stands up to him when necessary). American policy needs to be based on our shared American principles and the Secretary of State is the embodiment of these principles when dealing with foreign governments. It is no time for business as usual.