Can US companies be ordered out of China?
When Donald J. Trump (DJT) thinks that he can order U.S. companies to leave their businesses in China, that is not free enterprise capitalism…it is fascism. That is the kind of government interference and autocratic dictatorship of commercial activity that has only been practiced throughout history by fascist regimes. As to the nuts and bolts of the President being able to order U.S. companies to follow his dictates as to where they can do business, putting them under state control, he argues that under opaque law he can do it. When Trump wants to do something that appears outside of executive power, he orders his aides to search out justification in legal statutes. They typically find something on the books that was never intended to give the president authority to do what he intends and then apply it to his demands, claiming power that doesn’t exist.
Trump uses audacity as legal authority. By the time the courts get done ruling on its validity he is already so far down the road they are eating his dust. His supporters love that. There is no legal authority for the president to order U.S. companies out of China but he can make their business lives miserable if he so choses should they resist him.
They need government permits and such and he can see to it that they are discriminated against in getting things they need from Washington. If they resist him there can be retribution and he has shown no restraint in attacking those who oppose his will. Trump and officials in his administration play bad and good cop. He loves to be bad cop making threats that the White House then typically walks back a step. Then they often take two steps forward again. He is the only cop with authority.
The first thing that Trump would have to do to order companies from China is declare that some kind of emergency exists. In other words, he would have to make one up which is no problem for him. He does that all the time. He is using the International Emergency Powers Act of 1977 for his fake statute authority. Trump thinks that he can use it to destroy personal property rights but there are plenty of legal scholars who scoff at that contention. They are not laughing at it however. Sometimes Trump says things that some would not take seriously when he is. His advisers, Mnuchin and Kudlow, backed him up that he had the authority, but added the caveat that he had no intention to invoke it right now. That was actually more coordination in message than we typically see out of his administration.
China is where the most consumers live and companies need to be where the markets for their products are. It makes no sense for them to leave China. Most companies that have left China have not come to the U.S. but instead have temporarily evaded U.S. tariffs by moving elsewhere in Asia.
Maybe I should warn them that eventually Trump will take aim at Vietnam, Indonesia, and anyplace else companies are relocating to from China. He equates trade deficits with stealing. The U.S. goods trade deficit with Vietnam was $39.5 billion in 2018, so right now all that he is accomplishing is moving the U.S. trade deficit with China to other countries. That will catch up to them.
That is just the way that America First works. Eventually Trump would tariff everyone trying to gain access to the U.S. market. He is the strongest protectionist in modern history. He will build a wall around U.S. commerce. He doesn’t want U.S. companies crossing through either way. Apple would be screwed as it is estimated that it would take 5 years for it to move half of its production from China.
Trump uses fear. His tweet ordering U.S. companies out of China was scary, meant to be intimidating. It suggests that if they do not hop and skip to his orders that there will be consequences. We all know how much Trump loves dishing out retribution. Not even our allies are protected from it. He will force some business to choose between operating in the U.S. or joining the free world in opposing Trump dictates by leaving the U.S. He will isolate us.
Trump uses scapegoats. His favorite is Fed Chairman Jerome Powell. If there is a recession it will not be because Powell increased interest rates too fast, which the Fed did. That slowed growth but has not harmed employment. If there is a recession it will be trade war related and the only one responsible for that is DJT. His trade policy is weighing on the entire global economy. He doesn’t care because while the U.S. economy will be hurt by trade wars, the U.S. economy is less export dependent than others. When graded on the curve everyone else is hurt worse, which in his mind means that we win.
There is a lot of irony in Trump’s attempt to force U.S. business to manufacture in the U.S. One company said that the only place where they could get the equipment to manufacture their product here is to buy it from China. It would now be assessed a 25 percent tariff, going to 30 percent when the latest threat is followed through on. The irony is that tariffs are making it cost ineffective to move home.
The other irony is that almost all of Trump products were made in China or elsewhere so he never practiced what he now preaches. China has a $17 trillion economy and its supply chains are so deeply intertwined into U.S. supply chains that separation will be such a costly event.
Trump then realizes that he has to denigrate China to such a degree as to convince the U.S. public that they are so evil that the pain he is causing here must be endured to straighten out the trade imbalance allowed by other presidents before him. He is the chosen one. He was not kidding. That is part of his argument and his base loves it. He spins quite a narrative.
David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.
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