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The Trade Commander In Chief

Donald Trump.
photo by Gage Skidmore

My first thought, upon hearing that President Trump had “ordered” American businesses (via Twitter) to seek alternatives to operating in China, was that he was a little unclear about what the Founders meant by the phrase “commander in chief.”

The president tweeted a series of messages ahead of the recent Group of Seven meeting in France, in which he pledged to respond to China’s latest tariff announcement. As part of that thread, he wrote, “Our great American companies are hereby ordered to immediately start looking for an alternative to China.” Almost immediately, observers began to speculate on whether Trump had the power to order any such thing. The president later clarified – also via Twitter – that he meant he would use the International Emergency Economic Powers Act, a 1977 law that provides broad authority to the president to regulate economic transactions in case of a national emergency.

Whether an executive order on these terms would stand up to the courts’ scrutiny remains to be seen – that is, assuming Trump issues such an executive order at all. Presidential tweets alone are not the law of the land.

Entrepreneurs and executives start and operate businesses. We don’t enlist in an economy subject to the whims of whoever holds the current lease on the Oval Office. But after a little reflection I realized that this is true at all times except when it isn’t. Trump is far from the first president to threaten or seek to impose his dictates on American business. Nor is he thus far the most aggressive – even by peacetime standards.

In fact, nearly every modern president has interfered in private business matters at some point, especially during his first term, as the officeholder looked toward re-election. Barack Obama put two U.S. auto companies under quasi-public administration and then extracted $20 billion in “compensation” for real and purported victims of a massive Gulf of Mexico oil spill in a settlement with BP that did not settle much of anything. George W. Bush signed the Sarbanes-Oxley Act, setting accounting standards for much of the private sector. Bill Clinton sought unsuccessfully to restructure the entire health care industry.

But the three presidents who came to mind most quickly after Trump’s Twitter order were John F. Kennedy, Harry Truman and Richard Nixon.

Kennedy used “jawboning” – mere threat and bluster – to force American steel companies to roll back a 1962 price increase that he felt was unjustified and inflationary. Steelworkers’ negotiations with the nation’s steel companies were stalling. The threat of a strike began to loom. The White House intervened, and Kennedy’s Labor secretary mediated talks between the parties. The president pressured workers to accept a smaller pay raise so that companies would keep steel prices steady. But after the union agreement, industry leader U.S. Steel announced a 3.5% price increase. Six other companies followed suit. Kennedy, incensed, lashed out. A few days later the steel companies backed down.

Truman is well remembered for his effort, thwarted by the courts, to take direct control of most of America’s steel mills in 1952. It is less well remembered that in 1950 he actually did place much of America’s rail system under the direct control of the Army, which technically ran the trains for 21 months through much of the Korean conflict. Like Kennedy, Truman wanted to avoid a strike. Putting the railroads under Army control was purportedly essential to the war effort, although as the Supreme Court later observed in the steel case, Truman never obtained a congressional declaration of war.

In my own lifetime, Nixon went furthest of all. In 1971, he ordered a 90-day wage and price freeze across nearly the entire U.S. economy. He followed this freeze with more than two years of government-administered wage and price controls that carried him safely past his 1972 re-election. Not only did Nixon take direct command of the American economy, he broke the mold of the global trade and currency system by abandoning the Bretton Woods system of fixed exchange rates anchored by a U.S. dollar’s convertibility (by foreign central banks) into gold. He announced all this in a Sunday televised speech that I remember watching as a teenager.

Like Trump, each earlier president could point to some statute or other as support for his actions. Unlike Trump, almost none of his predecessors had the (dubious) benefit of a Twitter account through which he could issue “orders” that lack the actual force of law. To really accomplish anything, Trump needs to issue a genuine executive order.

He might yet do so, or he might not. It is always best, in the case of the current president, to discount the Twitter thread. It strikes me that Trump sometimes issues such tweets as a genuine mode of communicating information, while other times he tweets simply for effect or to gain leverage in a negotiation. In this case, the leverage he seeks is more likely to be over China in his ongoing trade fight, rather than over American business leaders. But of course with Trump, we often don’t know his aims until after the fact, if then. (Some would say Trump does not know until that point either.) This uncertainty does not make life any easier for those of us who run businesses. It is challenging to comply with government policy and its requirements when both the policy and the requirements seem so amorphous or unstable.

I have had my own reasons for avoiding China and advocating that businesses exercise caution there for many years. Most of my reasons overlap Trump’s complaints about the country’s abuse of foreign companies and their intellectual property, as well as its opaque and politicized legal system. If the president had merely advised businesses to consider making other arrangements, rather than “ordering” that they do so, it might have been equally impractical, but it would hardly have been newsworthy.

This president likes to make news in ways that none of his predecessors has done before. But as for policy, even a seemingly off-the-wall order to avoid doing business in China can be less groundbreaking than it first appears.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.

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