The president already has the authority to veto proposed acquisitions of American companies by foreign buyers if he believes they endanger national security. But the new order would give the commerce secretary authority to order American companies not to buy equipment from foreign suppliers, experts said.
“This is manifestly an abuse of the limited discretion the law gives the president” to respond to foreign economic threats, said Paul Rosenzweig, a homeland security official during the George W. Bush administration.
A senior White House official said the policymaking process remains in the “early deliberative” stages. The Commerce Department declined to comment.
While there is agreement among national security experts from both parties on the potential dangers of relying on foreign sources for critical technology equipment, some security analysts and trade lawyers questioned why the Trump administration would assert a national security emergency under the International Emergency Economic Powers Act (IEEPA) now.
That 1977 law, used by every president since Jimmy Carter to impose sanctions on countries such as Iran or Russia, gives the president broad authority over economic activity.
Such concerns about foreign supply chains have been building since at least 2003, when a National Security Agency study concluded that the United States needed to determine how to build secure networks from individual Chinese components that might themselves be vulnerable, according to James Lewis, senior vice president of the Center for Strategic and International Studies.
Amid continuing White House debate, it’s unclear where the president or his chief of staff, John F. Kelly, stand. The administration previously considered dramatic measures affecting telecommunications policy only to shelve them.
The president has frequently relied on national security arguments in his bid to reshape U.S. trading relationships, demonstrating a willingness to stretch legal authorities beyond their customary bounds.
In March, for instance, Trump cited a little-used national security provision of a 1962 law to impose tariffs on imported steel and aluminum. He also has ordered the Commerce Department to investigate doing the same on foreign-made automobiles and auto parts.
But to critics of the president’s “America First” trade policy, which seeks to return lost manufacturing jobs to the United States, the expansive powers under consideration carry the potential for misuse. Officials seeking to implement Trump’s “Buy American” policy might block purchases of foreign goods to benefit American suppliers rather than to protect national security, they said.
“It’s a big deal,” said one former U.S. official. “Let’s see how it gets used.”
The Trump administration in recent weeks considered using the IEEPA to implement restrictions on Chinese investment in American technology companies, but it opted to rely instead on an enhanced version of an existing Treasury-led panel, the Committee on Foreign Investment in the United States, or CFIUS. It reviews the national security risks of proposed transactions that could result in a foreign entity controlling a U.S. company.
Acquisitions of U.S. telecom providers by foreign companies are subject to special scrutiny. An informal alliance of the departments of Justice, Defense and Homeland Security and the FBI — known as “Team Telecom” — review such purchases to ensure that law enforcement and intelligence agencies will retain the ability to access U.S. networks.
Under legislation approved by the House and Senate, the CFIUS will be authorized to judge a broader array of deals, including the acquisition of minority stakes in American companies. But the law does not authorize any review of foreign equipment purchases.
A draft version of the executive order has been percolating for weeks and is among multiple telecommunications-related initiatives under consideration at the White House.
The draft order does not mention China, but it authorizes the commerce secretary to designate “particular countries, products, or services that present an unacceptable risk to national security.”
Experts who reviewed the document said it appeared aimed at Chinese telecom-infrastructure equipment makers, most notably Huawei and ZTE. Earlier this year, the Pentagon barred retail outlets on U.S. military bases from selling Huawei and ZTE phones, saying they posed a security risk.
Huawei, one of the world’s leading telecom manufacturers with more than $92 billion in annual revenue, is a principal target, according to one former U.S. official, who asked not to be named to discuss confidential deliberations.
U.S. intelligence officials have warned American companies not to purchase equipment from the Chinese suppliers and have looked for ways to block U.S. firms from acquiring it, according to current and former U.S. officials.
But rural telecom operators in the United States are attracted by Huawei’s quality equipment, low prices and customer service. “If a rural telecom company in South Dakota wanted to use Huawei, it wouldn’t fall under CFIUS,” the former official said. “It will fall under the purview of this executive order.”
Experts said that while the draft executive order appeared designed to be a legal response to national security threats, it would give the government extraordinary new authorities to regulate business.
“This would be a dramatic expansion of authority over the telecom sector,” said Peter Harrell, a former State Department official who helped develop sanctions against Iran, Russia and Syria during the Obama administration and is now a fellow with the Center for a New American Security. “It would definitely be a regulatory change in the way things are done.”
U.S. government agencies are vulnerable to espionage or cyberattack because of their dependence upon Chinese technology companies, according to an April study for the U.S.-China Economic and Security Review Commission, a congressionally chartered advisory panel.
Chinese spy agencies could manipulate products sold to the U.S. government to degrade their performance or to spy on U.S. operations, the report said.
Such concerns are not new. During President Barack Obama’s first term, the White House and the National Security Agency collaborated on a study of how the government had come to rely upon China for so much critical technology and communications gear, Lewis said.
“Everyone who works in the field knows that all parts of the supply chain are at risk — it’s just a question of how much and how you try to mitigate it,” said Rosenzweig, now a senior fellow with the R Street Institute, a policy group that advocates free markets. “Given the policy, this is a license to exclude anyone that the Commerce Department thinks is a risky actor — and that could be anyone.”
The commerce secretary would have the power to “investigate, block . . . regulate, direct and compel, nullify, void, prevent, or prohibit, or take any other action necessary to exercise” his new authorities to review instances when an American telecom firm buys or acquires foreign products and services, the draft order states.
That means, for instance, the secretary could tell an American telecom company that it couldn’t buy routers or other infrastructure equipment from Huawei.
The order’s muscular authorities provide a sharp contrast to the president’s intervention to soften penalties for ZTE, which violated U.S. sanctions on trading with Iran and North Korea.
In April, Commerce issued a virtual death sentence for ZTE, barring U.S. companies from supplying it. Trump called for the punishment to be eased, tweeting that “too many jobs in China” would be lost.
Lawmakers in the House and Senate included provisions in the annual defense spending bill that would restore the ban on ZTE buying from American companies.
“The administration wants Commerce to have blanket authority, not just when sanctions are involved, to do what it did to ZTE. But the administration itself backed off using that power in the ZTE case,” said Derek Scissors of the American Enterprise Institute, who periodically has been involved in the administration’s effort to develop stronger technology control policies.
Commerce Secretary Wilbur Ross has welcomed suggestions of enhanced authority to act against Chinese investments in the United States.
Sen. Charles E. Grassley (R-Iowa) and Sen. Sherrod Brown (D-Ohio), members of the Senate Finance Committee, have co-sponsored legislation that would empower the commerce secretary to judge whether proposed foreign investments are in the United States’ long-term economic interest — separate from the CFIUS national security review.
“We’re happy to help you with anything that will make it easier to restrict the Chinese investments here,” Ross told the committee last week. “To the degree that we could have the ability to pass on anything that the Chinese were trying to acquire, it would be very useful power because right now, the CFIUS is somewhat constricted as to what can be done.”