As of Friday, tariffs on $75 billion of imported goods such as soybeans, cars and crude oil will be reduced by half as part of a trade war cease-fire. While that’s good news for some, it still leaves thousands of American companies paying a higher price for goods integral to their business — which, in some cases, means redesigning their entire product and reworking their supply chain.
Moreover, while companies such as Apple received tariff exemptions long ago, other businesses have yet to be granted a waiver. Now, the conversation around tariffs has turned to whether or not politics plays a role in the exemption process.
Exclusion requests are overseen by the Office of the U.S. Trade Representative, which negotiated phase one of the trade deal and falls under the Executive Office of the President of the United States. Unlike the Department of Commerce, it does not have an inspector general who would audit and evaluate its processes.
All merchandise is assigned a specific tariff code in accordance with the Harmonized Commodity Description and Coding System, an international standard for tens of thousands of products. Simply determining the category and code for an item can be a laborious process — and the means for rejecting a waiver are, at best, opaque.
For example, one company’s request for an exemption on metal dog crates was granted — but an almost identical product was denied . A single-speed bike received a tariff waiver, while a multi-speed bike by another company was denied. Microsoft has three requests still under review — while Apple has already received 10 out of 15 requested exemptions.
Microsoft said it has no additional information to share on the status of its own requests.
“The Office of the U.S. Trade Representative had a good website and the questions are clear,” Frank Manning, CEO of Zoom Telephonics, said. “The mystery to me is how they get to their decisions. That’s what I wish I knew.”
The USTR declined to clarify its process. Instead, it pointed to the Federal Register, which states that the USTR “will evaluate each request on a case-by-case basis, taking into account the asserted rationale for the exclusion, whether the exclusion would undermine the objective of the Section 301 investigation, and whether the request defines the product with sufficient precision.”
Companies looking for relief from tariffs must file an application on the USTR’s website that notes whether their product is available in the U.S. and if it can be sourced from countries other than China. They must answer whether the product is “strategically important” to China’s state-led initiative called “Made in China 2025” to make China globally dominant in high-tech manufacturing.
Jasco, an Oklahoma City-based home electronics company, submitted 69 separate requests to the USTR to exempt some of its consumer electronics products. It won a few exemptions and lost others. One of the exemptions it lost was for a plug-in smart switch that works with Amazon’s Alexa voice assistant, though the administration granted an exclusion for similar in-wall switches. Now the company is spending millions of dollars to redesign its line of 3,700 products and is moving its manufacturing to the Philippines and Vietnam to get around tariffs.
“It’s a huge disruption,” Jason Trice, president and CEO of Jasco, said. “We’re selling simple consumer products and cabling products that are of no strategic significance to China or the U.S., and we’re just caught in the middle.”
The USTR’s approval rate is 11.7 percent, said Christine McDaniel, a senior research fellow at George Mason University’s Mercatus Center who focuses on international trade. Out of 43,968 product exclusion requests, only 5,124 have been approved so far, according to the center’s research.
“Even if you can show that if you don’t get a tariff waiver you’ll have severe harm, even if you can show there is no place to get it, USTR still denies,” said McDaniel. “It reflects the administration’s policy priorities. It does seem to be limiting U.S. imports from China.”
The question of political influence rises to the forefront when it comes to those companies who are granted a scarce exemption. Apple submitted 15 exemption requests in July that would cover parts for its computers and accessories. One week later, Trump tweeted that the company would not be granted any tariff relief, noting, “Make them in the USA, no Tariffs!”
Then, in August, the president tweeted that he planned to have dinner with Apple’s CEO Tim Cook that evening, adding, “They will be spending vast sums of money in the U.S. Great!” By September, 10 of Apple’s requests were granted and the company announced it would be making its new Mac Pro in Texas.
Trump even suggested last month that any waiver Apple has received should compel the company to offer further assistance to federal investigators seeking “back-door” access to iPhones used by criminals.
“I’ve given them waivers, because it’s a great company,” Trump said in an interview at the World Economic Forum in Davos, Switzerland. “Apple has to help us.”
As the USTR files through thousands of exclusion requests, businesses such as the Florida-based Supreme Crab & Seafood simply wait. Andy Walton, CEO of the company, said if he were to only source crab and shrimp from the U.S. to sell to his catering service clients, the cost for a pound of shrimp could skyrocket to $100 because there simply isn’t enough product raised here.
“Nobody wins except the government,” said Walton, who is a Trump supporter. “I wasn’t going to pay an attorney thousands of dollars to make an appeal when I didn’t feel it was going to go anywhere anyway. We just press on and just keep going.”