Collective Bargaining and Negotiating Theory: Insights into Tariff Tactics

Editor’s Note: This post has been updated from it’s original version.

On April 3, 2025, Canada announced the following countermeasures in response to the additional U.S. tariffs:

25% tariffs on non-CUSMA/USMCA compliant fully assembled vehicles imported into Canada from the United States; and
25% tariffs on non-Canadian and non-Mexican content of CUSMA/USMCA compliant fully assembled vehicles imported into Canada from the United States.

Canada also announced its intention to develop a framework for auto producers that incentivizes production and investment in Canada.

The current tariff disputes triggered by the U.S. administration have left many understandably dazed and confused. However, amid these increasingly turbulent tariff disputes, some perspective can be gained by considering the actions of the participants through basic negotiation theory – theory that we interact with and employ regularly at the collective bargaining table.

The Current Status of the Tariff War

A Quick Recap

As discussed in our FTR Now of February 6, 2025, U.S. President Donald Trump directed the U.S. to impose new tariffs on imports from Canada, Mexico, and China. The proposed tariffs were set to take effect on February 4, 2025, but were paused for a 30-day period until March 4, 2025.

On March 4, 2025, the U.S. imposed 25% tariffs on Canadian exports to the U.S. and 10% tariffs on Canadian energy. On March 5, the U.S. announced it would grant a 30-day reprieve from tariffs for all automobiles and auto parts. On March 6 a reprieve was granted until April 2, 2025, but only on goods that were compliant with the free trade agreement between Canada, the U.S. and Mexico (the CUSMA or USMCA). Further details on the rules that were in place for goods being imported into Canada were discussed in our FTR Now of March 5, 2025.

On March 12, 2025, the U.S. imposed 25% tariffs on Canadian steel and aluminum imports and on March 26 President Trump signed an executive order imposing 25% tariffs on all cars and light trucks imported to the U.S. effective April 2, 2025.

In response, Canada retaliated with its own counter-tariffs, referred to as a surtax, which was to be implemented in two phases: (1) on goods worth $30 billion, effective March 4, 2025; and (2) on goods worth $125 billion, effective March 24, 2025. Phase 1 was imposed effective March 4, 2025, while phase 2 was delayed until April 2, 2025.

What’s New: Additional Tariffs Announced on April 2, 2025

On April 2, 2025, the U.S. announced the imposition of the following new tariffs:

25% tariff on “all foreign made automobiles” which took effect at 12:01 am ET on April 3, 2025;
A universal tariff of 10% on all goods from all countries except those compliant with CUSMA/USMCA (Baseline Tariff), to take effect at 12:01 am ET on April 5, 2025 (while non-compliant goods will continue to be charged at a 25% rate); and
Reciprocal tariffs that are higher than the 10% Baseline Tariff against specific countries (Reciprocal Tariffs), to take effect at 12:01 am ET on April 9, 2025.
The Baseline Tariff and the Reciprocal Tariffs do not apply to Canada. However, in addition to the newly imposed tariff on automobiles, all prior tariffs imposed on Canada remain in effect.

As of the date of this article, Canada has not announced changes, nor has it confirmed any new details, regarding Canada’s retaliatory surtaxes against the U.S.

Negotiation Styles: Distributive vs. Integrative

Negotiation is a fundamental aspect of human interaction, particularly in settings involving economic transactions, diplomacy, and dispute resolution. Within the realm of negotiation, two prominent styles emerge: distributive negotiation and integrative negotiation. Each approach has distinct characteristics, strategies, and outcomes that can significantly influence the conduct and resolution of disputes.

Distributive Negotiation

Distributive negotiation is a negotiation technique that is fundamentally competitive in nature. At its core is the objective of maximizing gains at the expense of your negotiating counterpart. It is a “zero-sum game” in which every gain is achieved against a corresponding loss for the party with whom you are negotiating. It is particularly applicable when the transaction is straightforward, such as the purchase of property (say a hotel, for example), where the negotiation is about the price. Every discount the purchaser receives results in a corresponding financial loss to the seller.

Distributive negotiation is common in scenarios where there is a belief or assumption that the number of resources available are finite, to be divided between the parties. Accordingly, parties use aggressive tactics, such as setting high initial demands, making concessions slowly, and employing hard bargaining techniques, including the use of threats. As the primary goal is to secure the best possible deal for oneself, the negotiation process lacks collaboration and flexibility and the results are often skewed such that one party comes out on top.

Integrative Negotiation

In contrast, integrative negotiation expands the scope of the negotiation by recognizing and engaging the complexities of a relationship in an effort to pursue mutual gains and value creation and, in so doing, circumvents the often destructive zero-sum approach.

Integrative negotiation styles are typically seen in scenarios where parties have shared interests or the potential to create value beyond the immediate issue at hand. The aim is to increase the overall benefit by exploring common concerns and innovative solutions. When it works, both parties achieve positive results. Unlike distributive negotiation, integrative negotiation engages open communication, joint problem-solving and flexibility to find common ground.

Negotiation Approaches and their Impact on Tariff Disputes

In the context of tariff disputes, a country’s choice of negotiation approach can have profound implications for the outcomes and the long-term relationships of the parties.

The anticipated impact of distributive negotiation include:

Short-term Gains: Since the primary goal is to secure the best possible outcome for oneself coming out of the deal, parties prioritize short-term gains over long-term relationships, inflict and sustain damage in pursuit of those short term gains, and miss out on opportunities for innovation and growth.

Strained Relationships: The adversarial nature of distributive negotiation strains relationships between parties in the short term, undermines trust and enthusiasm for cooperation in the medium term, and may fundamentally change future behaviour in the long term.

Potential Deadlocks: The win-lose mentality of distributive negotiation can result in impasse if neither party is willing to compromise, resulting in lengthier disputes and an increase in collateral damage as parties wait until the more vulnerable party ultimately folds.

Where relationships are episodic or characterized by complete dominance, these negative consequences are often not seen as terribly important or impactful and distributive negotiation is often preferred.

In contrast, the anticipated impacts of integrative negotiation include:

Long-term Benefits: Agreements and discussions that address shared interests and that can enhance long term partnerships, lasting solutions, access to new markets, strategic alliances, and continued opportunities for innovation through shared expertise.

Strengthened Trust: The collaborative nature of integrative negotiation can foster mutual respect and a willingness to cooperate in future dealings. Parties begin to feel that their interests are being considered, and that the negotiation process is fair, building confidence in the relationship.

Reduced Conflict: As parties focus on mutual benefit, positive and productive working relationships develop and result in reduced conflict and ill will.

Where relationships are ongoing and complex with mutual benefit as the preferred outcome, these positive consequences of integrative negotiation are often seen as highly desirable and stabilizing.

What Can We Expect from Ongoing Disputes in the Short-Term Future?

The U.S. approach to these negotiations turns normative diplomatic and trade negotiation on its head. The dominant negotiating style of allies and friendly trading parties has been an integrative style punctuated by the occasional resort to distributive bargaining on distinct issues. What we are currently experiencing is a dominant distributive approach, occasionally punctuated by attempts to introduce the normative integrative approach. Negotiating theory suggests that what we can expect to see in the short term, in any event, is the following:

An Ongoing Competitive Approach: Negotiating theory suggests the continuation of a win-lose mentality, seeking to secure the best possible deal without concern for how other countries are impacted and without an overt appreciation for the complexity of the nature of diplomatic and trade relationships.
High Initial Demands: Negotiating theory suggests that we will continue to see “anchoring” – a strategy whereby American initial demands are high (and often, unreasonable), against which subsequent proposals are (often unreasonably) anchored or compared.
Reliance on Media: Bargaining power and the perception of bargaining power is essential to success in distributive bargaining. Negotiating theory suggests that we will continue to see the use of media as a tool to project strength by all parties involved.
Selective Negotiations: Negotiating theory suggests that if the parties maintain a distributive approach to bargaining, there will be a selective focus on those areas of trade where one party is dominant or has bargaining strength, at the expense of those areas that could result in a greater gain for both parties.
Hardball Tactics: Negotiating theory suggests that the aggressor in the dispute will continue to engage in classic hardball tactics for as long as those threats have credibility and will engage in communication that bolsters the credibility of those threats.

Conclusion

Negotiating theory appears to be on full display in the current trade dispute. Those who engage in collective bargaining will recognize many of the tactics that are being deployed and understanding those tactics can provide context that, while not lessening the impact of the current trade dispute, may dissipate some of the confusion and help to lessen some of the uncertainty.

Hicks Morley will continue to monitor developments relevant to ongoing trade disputes and our lawyers are here to assist with any circumstances that may arise as we navigate and prepare for continued uncertainties in the economy and the workplace.

FTR Now