Can Trump ‘Order’ US Firms Out of China? Should He? — CEO Daily
The special Sino Saturday edition of CEO Daily.
In Hong Kong this week, local business leaders have been falling all over themselves to affirm obeisance to Beijing.
Cathay Pacific, the city’s flagship air carrier, sacked the head of a flight attendants’ association—she claims because managers found images on her Facebook account urging friends to join anti-government demonstrations. Hong Kong offices of the Big Four accounting firms scrambled to distance themselves from an ad in a local tabloid supporting the protests. HSBC, Standard Chartered, and Bank of East Asia placed ads of their own deploring violence and urging a peaceful resolution to the conflict between pro- and anti-government forces that has roiled this city for the last three months.
The alacrity with which Hong Kong’s private firms sought to prostrate themselves before the state drew scorn in the global business press. “China’s Demands for Loyalty are Bad for Business,” blared a Bloomberg headline. “Businesses have collective strength,” wrote Financial Times columnist John Gapper. “Those with a big stake in Hong Kong’s future need to do more than fall meekly in line with China and become Beijing’s enforcers.”
And yet one Western leader seems quite taken with the idea of forcing private firms to kowtow. President Trump, in a furious tweetstorm Friday, lashed out against China for threatening new tariffs on $75 billion of U.S. imports, vowed to retaliate by raising existing U.S. tariffs on $250 billion of Chinese imports to 30%—and “ordered” U.S. firms out of China “immediately”:
“Our great American companies are hereby ordered to immediately start looking for an alternative to China,” Trump decreed, “including bringing your companies HOME and making your products in the USA.”
Does Trump, who earlier this week proclaimed himself “the Chosen One” anointed to lead America to victory in a trade war with China, have the power to enforce such a command? Jennifer Hillman, law professor at Georgetown University, assures the Washington Post that Trump does not have the authority to “duly order” companies to leave China.
But, as Reuters explains, Trump can discourage American firms from investing there by raising tariffs even higher. Or he could declare a national emergency and invoke the International Emergency Economic Powers Act granting the presidency broad authority to block the activities of individual companies or even entire economic sectors. In the most extreme scenario, Trump could invoke the 1917 Trading with the Enemy Act allowing the president to ban companies from doing business with countries with which the U.S. is at war.
Tariffs already are taking a toll on the U.S. economy, and the latter two measures would risk severe damage to U.S. firms, many of which are struggling even to shift supply chains to low-wage countries like Vietnam, let alone back to America. Trump’s edict provoked backlash on Twitter and in the press from U.S. business executives.
But the most insidious aspect of Trump’s diktat was highlighted by Brookings Institution China expert David Dollar in the New York Times: “It’s definitely outside the realm of a free-market economy…. It’s typical of the kind of thing we complain about from China and other economies where a government intervenes outside the rule of law.”
Even as he rails against Xi Jinping’s iron grip over China’s economy, Trump seems also to envy it.
Clay Chandler
– Clay.Chandler@Fortune.com
– @claychandler