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Trump ‘hereby’ orders U.S. business out of China. Can he do that?

The Washington Post logo The Washington Post 8/24/2019 Jeanne Whalen, Abha Bhattarai, Reed Albergotti
Donald Trump wearing a suit and tie: Photo by Nicholas Kamm / AFP / Getty Images © Nicholas Kamm/AFP/Getty Images Photo by Nicholas Kamm / AFP / Getty Images

President Trump’s extraordinary edict demanding U.S. companies move out of China — delivered in a series of angry tweets Friday — left industries of every stripe scrambling to understand how seriously to take the order, and how the White House might enforce it.

Businesses from retail to electronics to home goods, many already under pressure from a months-long U.S.-China trade war, were contacting their industry associations for guidance and awaiting more substantive announcements from the White House.

“I’m trying to keep my cool and not get worried and upset, but it’s becoming hard,” said Magi Raible, founder of LiteGear Bags, a luggage maker based in Vallejo, Calif.

She has a meeting next week with an industry colleague to discuss moving more of her manufacturing from China to India or South Africa, she said.

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“I don’t know how much faster I can move or how much more urgency I can have,” she said. 

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.

He does have power under the International Emergency Economic Powers Act to prevent future transfers of funds to China, “but only if he has first made a lawful declaration that a national emergency exists,” she said.

Congress could terminate the declaration if it wishes, she said.

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

Other trade experts said Trump does have powerful tools at his disposal to encourage companies to leave.

They include continuing to hike tariffs on imports from China, as Trump did again on Friday. The White House could also try to punish companies by cutting them out of federal procurement deals, economists said.

“The tweet isn’t entirely cheap talk,” said Derek Scissors, a China expert at the American Enterprise Institute, a think tank partly funded by industry.

Trump fired off the tweets after China imposed a new round of retaliatory tariffs on $75 billion worth of American imports Friday.

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“We don’t need China and, frankly, would be far better off without them,” Trump wrote. “… Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA.”

The message made public what Trump has been telling companies in private for more than two years, said William Reinsch, a trade expert at the Center for Strategic and International Studies.

“The reality is many companies have been thinking about leaving, anyway,” Reinsch said.

“Labor costs are going up in China, the regime is repressive, and American companies continue to suffer discrimination,” he added.

Some apparel and electronics makers have been moving out of China, propelled lately by the U.S. slapping ever-higher import tariffs on goods made in China.

But few of these companies have been moving jobs back to the United States. Instead, they’ve been shifting to other low-cost countries such as Vietnam or Bangladesh.

Other industries that would like to leave China say they’ve found it difficult to find manufacturing of the same quality and low cost elsewhere.

“Companies would love to find alternate sources, but it can’t happen overnight,” said Jonathan Gold, vice president of supply chain and customs policy at the National Retail Federation. “And even when it does, unfortunately a lot of that [manufacturing] won’t come back to the United States. We agree that China has been a bad actor, but we need to get back to the table and work out a trade deal.”

Some analysts saw Trump’s tweets as a particularly aggressive move against Apple and other tech companies, which manufacture many of their goods in China. Dan Ives of Wedbush Securities called Trump’s command “a clear shot across the bow at Apple and the semi space,” referring to the semiconductor sector.

Over decades, Apple has become intertwined with China’s electronics assembly infrastructure to a degree that is extremely difficult to undo. In a best-case scenario, it would take Apple five years to move just half of its iPhone production out of China, Ives said.

In many ways, Apple’s rise from an also-ran in the market for personal computers to one of the most valuable companies on the planet is due to its partnership with Foxconn, a Taiwanese juggernaut that manufactures in China.

Apple may have come up with the ideas for its consumer products, but Foxconn founder Terry Gou made them a reality, starting in the early 2000s by leveraging China’s manufacturing prowess to build sleek devices at such low cost that they were also profitable.

Apple has toyed with assembling products outside China in the past, building comparatively small numbers of desktop computers in the United States and exploring iPhone manufacturing in India and Southeast Asia, but the company remains highly dependent on China.

Apple chief executive Tim Cook has been among the friendliest to Trump of the big technology CEOs, repeatedly meeting with the president to discuss trade policy. Even as some tech-industry leaders have faced criticism for involving themselves with Trump, Cook has steadfastly engaged, even serving on the Workforce Policy Advisory Board, chaired by Commerce Secretary Wilbur Ross and Ivanka Trump, the president’s daughter.

After tweeting about a recent dinner with Cook, the president praised the CEO in front of reporters earlier this week, telling them that Cook calls him whenever there’s a problem.

“Others go out and hire very expensive consultants, and Tim Cook calls Donald Trump directly,” Trump said.

China, because of its sheer size, is also an important market for iPhone sales, compounding Apple’s reluctance to disrupt its manufacturing presence there. In the third fiscal quarter of 2019, the country was responsible for $9.19 billion of Apple’s revenue, compared with $25 billion in the Americas.

Plenty of other industries rely on China, too. Delta Children, a U.S. manufacturer of baby furniture, makes about 80 percent of its products in China.

Joe Shamie, the company’s president, said that he has tried in recent months to move production to other countries, including Indonesia, Malaysia and Vietnam, but that factories in those countries are already saturated with orders.

He has also tried to find ways to manufacture mattresses in the United States, he said, but would need about $1 million worth of machinery from China, which is now subject to the Trump administration’s recent 25 tariffs on imports.

“I’m trying my best, and now you want to tax me on the machinery I need to manufacture in the United States? That’s real smart,” he said. “This has been a disaster.”

Columbia Sportswear says it began moving its manufacturing out of China about 15 years ago as cheaper alternatives emerged in other parts of Asia and Africa. The company now sources from 19 countries but still gets about 10 percent of its imports from China.

“It’s not the cheapest place in the world to make stuff anymore, but the merchandise that still comes from China is very specialized and can’t be moved easily,” said Timothy Boyle, the company’s chief executive.

LiteGear Bags used to manufacture all of its luggage and accessories in China. In recent months, founder Raible says she has spent tens of thousands of dollars moving about one-third of the company’s operations to Cambodia.

“It was an incredibly difficult process,” she said. “It took them months to get up to speed. I mean, this was a factory that was making sunglass pouches and all of a sudden I’m asking them to make shoulder bags, packing cubes and backpacks.”

The majority of her products continue to come from China, and she said the Trump administration’s tariffs have caused import duties to rise to 42.6 percent on many of her items, up from 17.6 percent less than a year ago. She’s had to lay off her staff of six, and now relies on hourly contractors to help with accounting, shipping and graphic design.

“I’m fighting tooth and nail to hang on,” she said.

Trump himself has long capitalized on foreign manufacturing, particularly in China, for the production of Trump brand merchandise.

In the retail shop operated by the Trump Organization in the back of Trump’s D.C. hotel, golf caps and travel coffee mugs emblazoned with the Trump name and made in China are still offered for sale, alongside other products produced in Indonesia, Vietnam and other countries.

A spokeswoman for the Trump Organization, Amanda Miller, did not respond to a request for comment Friday about whether the company would stop selling or producing Chinese products in response to the president’s directive.

Trump still owns his company, but it is being managed by his adult sons, Donald Trump Jr. and Eric Trump, while he is in office.

Amid criticism that Trump’s company continued to rely on imported merchandise while Trump railed against others for doing so, the Trump Organization began offering more merchandise clearly labeled “Made in America,” including T-shirts and hats. On its retail site, TrumpStore.com, the company now lists a “Made in America” section.

During the presidential campaign, Trump responded to a question about why he imported products by saying, “We’re allowed to do it. … But I’m the one that knows how to change it.”

Jonathan O’Connell contributed to this report.

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