Trump: Economic Caesar

In the late Roman Republic, the constitution permitted the Senate to name a “dictator” in times of emergency and external threat.

Contrary to today’s meaning, the dictator was not considered power-hungry or illegitimate. Instead, the dictator was a sensible response to the threat because he could override the normal legislative processes and respond quickly.

Roman dictators even had a two-year term limit! Many Americans don’t realize that the Congress has already granted similar dictatorial powers to the U.S. president to respond to certain emergencies.

These powers are not peculiar to Donald Trump but have been used by presidents as far back as George Washington.

Abraham Lincoln declared martial law and suspended the writ of habeas corpus during the Civil War. Woodrow Wilson nationalized many U.S. industries during World War I. Franklin Roosevelt confiscated Americans’ gold bullion during the Great Depression.

Today, Trump’s method is to weaponize national security considerations in the context of trade disputes. The U.S. has always had ways to stop trade flows and restrict direct foreign investment based on national security considerations. It’s just that past presidents have never used this authority because they are globalists (Republicans and Democrats).

But unlike previous globalist presidents, Trump is a nationalist.

Trump has never since wavered in his belief that China and other countries are taking advantage of the U.S.’s low tariffs to export to the U.S., hurt U.S. industry and steal U.S. jobs and intellectual property.

The only reason he didn’t act sooner was because he wanted China to help him reel in North Korea’s nuclear program.

But those efforts largely failed, and Trump was free to take off the gloves. As far as Trump is concerned, trade is a very serious issue. You might disagree with the trade war. Wall Street certainly does. But Trump always took it very seriously, as we’ve all learned by now.

Many people consider Trump a novice who doesn’t know what he’s doing. But he has some very sharp policy people around him who agree with his basic positions.

The key player in this trade war in addition to Trump himself is Robert Lighthizer, the United States Trade Representative (USTR). Lighthizer holds a cabinet-level position and is a veteran of the Reagan administration.

In the early 1980s, Lighthizer used high tariffs on automobile imports to force Japanese and German auto manufacturers to move their plants to the U.S. This resulted in the creation of thousands of high-paying auto manufacturing jobs in the U.S. Now Lighthizer is running the same playbook.

Except this time his target is China, not Japan and Germany, and the products he is targeting are not automobiles but a long list of industries and manufactured goods including steel, aluminum, electronics and telecommunications equipment.

The goal is to bring jobs in these industries back to the U.S. — just like tariffs on Japanese and German auto imports brought good auto jobs back to the U.S.

So the logic behind the trade war is not frivolous. It’s just that so many people were used to the trade practices that developed under a series of globalist presidents, they assumed they were natural. They weren’t. Trump’s simply trying to correct many of them.

Trump’s three main “weapons,” mostly unknown to everyday Americans, are IEEPA, CFIUS and Section 301 of the Trade Act of 1974.

• The International Emergency Economic Powers Act (IEEPA) allows the president to regulate commerce after declaring a national emergency. He can declare this emergency “to deal with any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States.”
• The Committee on Foreign Investment (CFIUS) gives the executive branch power to monitor the impact of foreign investment in the United States, and determine if it jeopardizes national security. It can block acquisitions of U.S. firms by Chinese companies, for example.
• Section 301 of the Trade Act of 1974 is the “nuclear option” when it comes to trade wars. I don’t want to get too deeply in the weeds here, but Section 301 gives the president broad authority to impose sanctions and penalties. It gives the president a free hand to impose billions of dollars of damages (if not more) on China.

In fact, the trade war began on Thursday, March 22, when President Trump signed an  executive order pursuant to Section 301 of the Trade Act of 1974. This order imposed $50 billion of penalties and tariffs on Chinese exports to the U.S.

One of the most powerful tools a president possesses is the ability to declare a “national emergency” under the abovementioned IEEPA, which was signed by President Jimmy Carter.

This allows a president to freeze and seize assets and order U.S. companies to take specific steps in response to threats to national security having origins abroad.

President Trump has said he may use his IEEPA powers to order U.S. companies to end operations in China and shift production back to U.S. plants. Trump critics have suggested Trump is going overboard by using IEEPA in this way. But that’s not true.

IEEPA has been used extensively in connection with sanctions and asset freezes going back to the Iranian Revolution in 1979, including sanctions on Russia for Crimea and other sanctions on Syria, North Korea, Venezuela and Iran again.

The bottom line is, Trump can get everything he wants anyway using IEEPA, CFIUS and Section 301. The globalists can freak out all they want, but can’t stop him. And we must confront the strong possibility that the trade war could last years.

And he’s using these powers like crazy to push his agenda. Congress can’t stop him because all of these weapons are statutory; they were already passed by Congress in the 1970s and 1980s.

These statutes delegate expansive powers to the president. What’s new is not the law but the way the law is being used.

Free market advocates, libertarians and Trump-bashers would all do well to study the vast array of economic weapons at the hands of the president that do not need congressional approval, including the Patriot Act, CFIUS, the Trading with the Enemy Act of 1917 and many other statutes.

When it comes to markets and the economy, the president has the powers of a dictator. And Congress has said that’s a good thing.

Regards,

Jim Rickards
for The Daily Reckoning