Friday, just hours after China announced retaliatory tariffs on US goods on President Trump ordered US companies to “start looking for an alternative to China, including bringing your companies HOME and making your products in the USA..”
The stakes are high
US companies invested a total of $256-B in China between Y’s 1990 and 2017, compared with $140-B Chinese companies have invested in the United States, according to estimates.
Some US companies had been shifting operations out of China even before the tariff trade dispute began more than a year ago. But winding down operations and shifting production out of China completely takes time.
Plus, many US companies such as those in the aerospace, services and retail sectors would be sure to resist pressure to leave a market that is not only huge but growing.
Unlike China, the United States does not have a centrally planned economy.
So, the Big Q is: What legal action can the President take to compel American companies to do his bidding?
The Big A: President Trump has some very powerful tools that do not require approval from the US Congress, they are the following;
President Trump could do more of what he is already doing and he did late Friday, that is hiking tariffs to squeeze company profits enough for them to make it no longer worth their while to operate out of China.
In addition to making it more expensive to buy components from Chinese suppliers, tariff hikes punish US firms that manufacture goods through joint ventures in China.
President Trump could treat China like Iran and order sanctions, which would involve declaring a national emergency under a 1977 law called the International Emergency Economic Powers Act, or IEEPA.
Once an emergency is declared, the law gives President Trump broad authority to block the activities of individual companies or even entire economic sectors, former federal officials and legal experts said.
For example, by stating that Chinese theft of US companies’ intellectual property constitutes a national emergency, he could order US companies to avoid certain transactions, such as buying Chinese technology products.
The IEEPA framework is broad enough to do something blunt and very forceful.
FEDERAL PROCUREMENT CURBS
Another option would be to ban US companies from competing for federal contracts if they also have operations in China.
Such a measure might be targeted specifically at certain sectors since a blanket order would hit companies such as Boeing (NYSE:BA), which is both a Key weapons maker for the Pentagon and the Top US exporter.
1917 TRADING WITH THE ENEMY ACT
The more dramatic measure would be to invoke the Trading with the Enemy Act, which was passed by Congress during WWI.
This law allows the the President to regulate and punish trade with a country with whom the United States is at war. President Trump is unlikely to invoke this law because it would sharply escalate tensions with China.
It would be a very dramatic step to declare China to be an enemy power with which the US is at war, given the President has at times touted his friendship with and respect for President Xi. But, of course ‘things change.’
The ‘Act’ would amount to an overt declaration, while IEEPA would allow The Trump Administration to take similar actions without as large a diplomatic cost. Stay tuned…