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Why Trump would struggle to punish companies that offshore jobs

President-elect Donald Trump and Vice President-elect Mike Pence take a tour of Carrier in Indianapolis on Thursday. (Jabin Botsford/The Washington Post)

President-elect Donald Trump faces significant political and legal obstacles to carrying out his threat of punishing companies that offshore jobs with a border tax, with experts calling the move a likely violation of international trade rules.

In public remarks and a flurry of tweets over the past week, Trump warned that he intended to slap a 35 percent tariff on any goods that U.S. businesses manufactured in another country then tried to sell back home. Trump had proposed the idea on the campaign trail, but the threat took on new weight following his direct intervention to stop an Indiana factory from moving to Mexico.

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However, several international trade experts were skeptical of whether the president has the authority to impose such a tariff. The power to levy taxes belongs to Congress, not the executive branch. Any tax bill must originate in the House and would require Democratic support to muster the 60 votes required to move forward in the Senate — an unlikely proposition.

In addition, Trump could face an uphill battle finding support within his own party for punishing companies that offshore. On Monday, House Majority Leader Kevin McCarthy declared "I do not believe in a trade war," a damaging outcome that economists have predicted could result from implementing Trump’s tariffs. Meanwhile, House Speaker Paul Ryan tempered his initial support for the deal with Carrier.

In an interview with the Milwaukee Journal Sentinel, he did not directly address questions about punishing companies that offshore jobs but focused instead on Republican’s long-held goal of lowering the corporate tax rate.

“I think we can get at the goal here, which is to keep American businesses American, build things in America and sell them overseas — that can be properly addressed with comprehensive tax reform,” he told the paper.

House Ways and Means Chairman Kevin Brady (R-Tex.), whose committee would be responsible for any bill regarding tariffs, voiced a similar sentiment in a recent interview with Fox News.

“Carrier really is an example of what we can avoid if we get tax reform right,” he said.

Frustration over the erosion of America’s manufacturing industry — and the middle-class jobs that came with it — helped drive Trump’s passionate but divisive campaign. The real estate mogul repeatedly promised to stop companies from offshoring production, rip up free trade agreements and protect American products through blanket tariffs on imports, particularly from China and Mexico.

Trump’s negotiations with Carrier — his first major policy action since the election — suggest he will at least attempt to carry out some of those pledges.

Under international law, the president does have the power to impose penalty tariffs against countries or on certain industries, but only under extreme circumstances such as a threat to national security or during war. In addition, Gary Hufbauer, senior fellow at the Peterson Institute for International Economics, a think tank, said it is unlikely that authority extends to specific companies.

“With existing statutory powers he can limit or stop imports of particular products and in other ways interrupt foreign commerce,” he said. “But targeting individual firms is a step too far.”

Even if Congress did pass legislation supporting Trump’s threat, trade experts said the law would almost certainly run afoul of U.S. agreements under the World Trade Organization. It also likely violates regional trade deals, such as the North American Free Trade Agreement.

“There is no issue that it would be illegal under WTO law,” said Robert Howse, an international law professor at New York University.

Still, University of California-Berkeley political science professor Vinod K. Aggarwal argued that Trump may be able to exploit weakness of the WTO’s rules to his advantage. First, he could claim extreme circumstances to impose hefty tariffs on product categories so specific that they essentially apply to only one company -- say, pickup trucks of a certain size and weight manufactured in Mexico if he wanted to retaliate against Ford.

Even if those penalties violate WTO rules, the organization has no independent enforcement agency. Instead, a member country would have to file an official complaint against the United States in order for the WTO to take action.

In a 2014 paper, Aggarwal and his coauthor, Simon J. Evenett of the University of St. Gallen in Switzerland, found that developing countries, such as Brazil, have supported domestic industries through tariffs, tax incentives and subsidies with little repercussion. WTO cases can take years to process, and the consequences for the losers are often mild, they argue.

“Even if sanctions are allowed following a dispute settlement victory, the offending nation may be prepared to suffer the associated harm done by the sanctions or, as is allowed under WTO rules, offer some other form of compensation,” they wrote. “In this case, the offending industrial policy measure will not be removed, calling into question what bite the WTO accord had in the first place.”

In an interview, Aggarwal added: "For people to say he doesn’t have the power to do it, that’s just naive.”

Staff writer Kelsey Snell contributed to this report.