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Can Trump force U.S. companies out of China?

Trump sends mixed signals on China
  • The International Emergency Economic Powers Act of 1977 would give President Trump discretion to impose restrictions on U.S. companies doing business in China if he declared an emergency.
  • The law was first used in 1979 by President Jimmy Carter to impose sanctions on the Iranian government during the Iran hostage crisis.  
  • Although Congress could intervene to block Mr. Trump from declaring an emergency, it would be unlikely to do so given the ongoing partisan conflict in Washington, D.C.

President Donald Trump startled investors last week when he took to Twitter and "hereby ordered" U.S. companies to stop doing business in China as the countries continue to clash over trade. So is he within his rights?  

The answer, experts say, is probably so. The International Emergency Economic Powers Act (IEEPA), a more than 40-year-old law Mr. Trump later cited in another tweet, gives the executive branch broad powers that, if invoked, could make it difficult for U.S. companies to operate in China. 

Passed by Congress in 1977, IEEPA authorizes the president — after a national emergency is declared — to "investigate, regulate or prohibit" a range of activities by U.S. companies engaged in global commerce. Those include foreign exchange transactions, banking payments or transfers, and the import or export of foreign currency and securities. The law was 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, U.S. presidents had invoked the act more than 50 times since its initial passage, according to the Congressional Research Service.  

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More recently, Mr. Trump in May invoked IEEPA in placing restrictions on U.S. companies doing business with Chinese technology company Huawei. He also threatened to use it to impose tariffs on Mexico tied to immigration. The difference now is that Mr. Trump is threatening to use IEEPA, which is typically used for sanctions, as a cudgel in his administration's trade war with China. 

Mr. Trump's threat to block U.S. 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.    

The White House has since walked back Mr. Trump's order that U.S. companies cut ties with China amid protest from the business community. But he could still brandish IEEPA down the road if the conflict continues to deteriorate.

"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, the White House economic adviser, told Margaret Brennan Sunday on CBS' "Face the Nation."

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So what's to stop Mr. Trump from using IEEPA to push U.S. companies around in an unending series of national emergencies? In a word, Congress, which is constitutionally mandated to regulate commerce with foreign countries and which could vote to end a national emergency. 

The problem there is that Congress would likely need a two-thirds majority to end a national emergency, according to the Congressional Research Service. Partisan conflict in Washington would make that a tall task, giving Mr. Trump more room to exercise his power under IEEPA.

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