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Supply Chain News: Can President Trump Really Order US Companies from Sourcing from China?

 


It Seems Largely Yes, through Indirect Means

 

Aug. 28, 2019
SCDigest Editorial Staff

In a new and somewhat bizarre twist in the on-going trade war with China, President Donald Trump used Twitter last week to say he "hereby ordered" US companies to stop doing business in China.

Does he have the legal authority to do that?

Supply Chain Digest Says...

But under the law he cited, Trump can prevent future transfers of funds to China.

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There are actually a number of opinions on that, from Yes to No to Maybe.

A report on CBS News is one that says the answer is probably Yes.

That's because he International Emergency Economic Powers Act (IEEPA), a more than 40-year-old law Trump later cited as giving him the authority to potentially make such an order, does in fact give the executive branch broad powers that could make it difficult for US companies to operate in China.

IEEPA was signed into law in 1977 and authorizes the president - after he or she first declares a national emergency - to "investigate, regulate or prohibit" a range of activities by US companies engaged in global commerce.

Those include, CBS says, foreign exchange transactions, banking payments or transfers, and the import or export of foreign currency and securities. So while Trump cannot directly order US companies out of China, he could do so indirectly by cutting off financial flows.

The law was actually first used in 1979 by President Jimmy Carter to impose sanctions on the Iranian government during the Iran hostage crisis.

IEEPA is "an extraordinarily broad and open-ended delegation from Congress to the president," Jack Goldsmith, a Harvard Law School professor and Hoover Institute fellow, said in a tweet. As of earlier this year, US presidents have in fact invoked the act more than 50 times since its initial passage, according to the Congressional Research Service.

And Trump already had invoked IEEPA to place restrictions on US companies doing business with Chinese technology company Huawei.

He also briefly threatened to use the law to apply new tariffs on Mexico to force it to step up measures to reduce migrants coming to the US. But use as a weapon in a trade war would be a whole new application.

Trump's threat to block US companies from doing business in China "would face no effective legal barrier," Height Securities analyst Clayton Allen said in a research note. The White House could also expect backing from the courts, which have tended to uphold even broad exercises of power under IEEPA, Goldsmith said in another tweet.


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The White House has subsequently toned down Trump's threatened order that US companies cut ties with China after strong pushback from US businesses.

But Trump could dust off the power again if the trade war drags on.

"So in theory that law exists, but that's not what the president said. He is asking American companies to take a look, take a fresh look at frankly moving out of China, go in someplace else," Larry Kudlow, White House economic adviser, told Margaret Brennan Sunday on CBS' "Face the Nation."

A slightly different view comes from the Washington Post, which finds Trump does not have the authority to "duly order" companies to leave China, according to Jennifer Hillman, a Georgetown University law professor and trade expert at the Council on Foreign Relations.

But under the law he cited, Trump can prevent future transfers of funds to China, she said. First, he would have to make "a lawful declaration that a national emergency exists," she said.

However, Congress could then terminate the declaration if it wishes.

"Moreover, even if all this happened, it would not provide authority over all of the US investments that have already been made in China," Hillman said.

So in the end it appears Trump could force US companies from China, but through a process, not a tweet.


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