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Daft Coalition Economics 5: Poor bargaining instructions on a trade agreement

Mr Abbott is sending out signals that he wants to quickly – by the end of this year – reach a free trade agreement with China.  It is generally dumb to announce in advance in a bargaining situation that you wish to settle quickly.  It provides incentives for the other side to seek to exact extra concessions and means you get less. Abbott has even pre-announced he will accept a “pared-back” deal. This isn’t smart. The patient side in a bargaining situation will get a bigger share of the surplus.

When a small country negotiates a trade agreement with a large country most of the gains are likely to go to the large country anyway.  But Abbott’s impatience as it is being conveyed to Australian negotiators (and to the Chinese) weakens Australia’s position.

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