Trump’s trade war against China is the product of bad economic theory and is producing bad law. From Andrew P. Napolitano at lewrockwell.com:
Late last week, President Donald Trump issued a tweet in which he purported to order American businesses to cease doing work with their employees and contract partners in China.
He claimed he was exercising presidential powers pursuant to what he contended was the national emergency surrounding the trading relationship between the United States and China.
Since he did not declare a national emergency, he did not notify Congress and give it the opportunity to ratify or reject his executive orders. In fact, he didn’t even sign any executive orders on this.
He merely ordered American businesses in a tweet to cease all commercial activities with anyone in China. It appears that no American company took him seriously and none complied. Can he legally do this?
Here is the backstory.
Since his election as president, Trump has been fixated on the balance of trade between the U.S. and China. The balance of trade is the difference in total value annually between exports and imports. Thus, since American businesses and consumers purchase more goods and services from Chinese businesses than American businesses sell to the Chinese, the U.S. has a deficit balance of trade with China and China has a surplus balance of trade with the U.S.
Stated differently, more goods made or assembled in China are attractive to American consumers and investors than goods produced here are attractive to Chinese investors and consumers. As well, investors from China are quite willing to finance goods made and assembled there to keep their cost low and their attractiveness to American consumers high.
All of this has come about by the free choices of American investors and consumers. Is this trade imbalance detrimental to the American economy? In a word: No.
But Trump has been willing to engage in the type of central economic planning he once condemned by making it more costly for Chinese businesses to sell goods to their American counterparts and American consumers. And he has done so by imposing tariffs upon American purchasers.
A tariff is a sales tax that, because it has not been enacted by Congress, as the Constitution requires of all federal taxes, is unconstitutional. Trump has argued that tariffs on Chinese goods sold in America have forced the Chinese government to pay the equivalent of hundreds of billions of dollars to the U.S. Treasury.
This is nonsense. Tariffs are paid by the end user — in this case, American consumers and investors whenever we buy a product that originated wholly or in part in China.
And, of course, China has retaliated against American businesses by imposing its own tariffs on American products, most notably agricultural goods produced by Midwestern farmers. Many of those farmers have lost their Chinese buyers for certain 2019 growing seasons.
Trump claims that what he wants are more favorable trading terms between American and Chinese businesses, and his tariffs and other “orders” are simply a means of getting there. He does have a real argument that Chinese domestic subsidies and currency manipulation have put Chinese producers at an artificially unfair advantage over their American competitors.
So what? Why shouldn’t American consumers be able to take advantage of that? His tariffs are a remedy worse than the disease; the little guy gets hurt the most, often without recourse.
Now, back to Trump’s order for American businesses to cease doing business in China. The president claims the authority to issue such an order comes from emergency powers granted by law to President Jimmy Carter in 1977, which he used to address the truly dangerous Iran hostage crisis by using economic rather than military tools.
Carter wanted to prohibit American businesses from selling certain goods to businesses in Iran to coerce the government into releasing the American hostages.
But that law — the International Emergency Economic Powers Act — requires the existence of a true emergency in the U.S. caused by a foreign power. The courts have defined “emergency” as the sudden, imminent onset of harm to the lives or property of Americans that cannot be addressed by the exercise of ordinary government means.
That is hardly the case here. Here, we have a sophomoric boasting contest between Trump and President Xi Jinping as to which country has a stronger economy, and they both think they can win that contest by using government to interfere with otherwise free economic choices.
Trump himself has demonstrated the ability to shake up domestic and foreign markets using ordinary government means. Now he claims he has the right to exercise emergency powers to address a nonemergency that he caused.
The imbalance of trade is not only a nonemergency; it is also a nonissue to anyone who understands Economics 101. But even to those who don’t, they will suffer at Trump’s hands when the products they buy — smartphones, household electronics, clothing, toys — suddenly cost 30% more than two years ago.
Where does this leave us?
We are witness again to a president who chooses to take the law into his own hands and who somehow thinks that central economic planning will enhance prosperity in America. He should know better. The lessons learned from Eastern European government central planning in the last century demonstrate that economic planning only benefits the planners.
Freedom to choose products and investments produces more prosperity than government planning.
Economic freedoms — to contract, to invest, to buy and to sell — are guaranteed by the Constitution and once were protected from interference by the government.
But constitutional guarantees are only as reliable as is the fidelity to upholding them of those in whose hands we have entrusted the Constitution for safekeeping.
Are our constitutional guarantees safe in Trump’s hands?