Trump’s “Order”: Leave China Immediately?

In a series of Tweets, Trump suggested “American companies to immediately start looking for an alternative to China...”. This is the decoupling he intends, a reversal of decades of globalisation.

The U.S. President has extraordinary powers under the 1977 International Emergency Economic Powers Act. There are around 29 national emergencies that he can invoke instead of being hampered by Congress. Will Trump follow through?

Will American business divest USD191.3 billion in assets in China, Hong Kong and Macau combined? This is no small sum! In a chaotic fire sale they will not get a good price. Then there is the loss of revenue for GM, Caterpillar, Boeing, Apple and a whole host of others.

The US Chamber of Commerce rebuffed Trump’s suggestion and urged China and the United States to quickly reach a deal in the long-running trade issue. “While we share the president’s frustration, we believe that continued, constructive engagement is the right way forward,” the group said.

Experts said tax policy changes and sanctions could be used to restrict or reduce US business activity in China, but it would take years to disentangle the world’s two largest economies. The consequences of a complete break to the world economy would be severe, they said.

China, for instance, holds US$1.11 trillion in US Treasury securities.

For many products sold in the United States, there are few alternatives to Chinese production, and shifting production for major goods produced there could take years and be expensive.

American companies could also sue the US government in response to any order to shutter plants in China. The most effective option for Trump would be to restrict federal procurement from any companies that do business in China. That would hit companies like Boeing Co, Apple and General Motors, which are both big US contractors and have large business interests in China.

Bill Reinsch, a former senior Commerce Department official, said Trump had limited options to force US companies to quit China, and it would make little economic sense. “We can’t be a market economy and do that,” Reinsch said. “No one’s going to pay attention to it anyway. Companies do what they’re going to do.” Many US companies have already begun moving some operations out of China due to rising labour costs. But others, including General Motors, have large plants there to supply the Chinese market. They would resist any pressure to close their facility there, given the size and importance of the Chinese market, Reinsch said.

  

Last week, Trump backed off his Sept 1 deadline for 10 per cent tariffs on remaining Chinese imports, delaying duties on cell phones, laptops and other consumer goods. The US Trade Representative’s Office delayed tariffs on more than half of the US$300 billion in Chinese-made goods telling companies the delay covered product categories where China supplies more than 75 per cent of total US imports.

The trade war as it seems is spiralling out of control, especially when you have a “stable genius” doing gross instability! The impact is not just for China or the U.S. but the world as a whole. A war on intellectual property rights cannot end bereft of intellect!

Reference:

Trump orders U.S. companies to leave China, Reuters, 24 August 2019