Long wait for China tariff exemptions pays off for some

About a third of requests for exemptions from tariffs were granted in first two tranches of tariffs

President Donald Trump and Apple CEO Tim Cook, to Trump’s right, tour the Flextronics computer manufacturing facility where Apple’s Mac Pros are assembled in Austin, Texas, in November. Apple has fared better than most companies in winning exemptions on tariffs on Chinese imports. (Mandel Ngan/AFP via Getty Images file photo)
President Donald Trump and Apple CEO Tim Cook, to Trump’s right, tour the Flextronics computer manufacturing facility where Apple’s Mac Pros are assembled in Austin, Texas, in November. Apple has fared better than most companies in winning exemptions on tariffs on Chinese imports. (Mandel Ngan/AFP via Getty Images file photo)
Posted December 23, 2019 at 10:00am

The limited scope of the phase one trade deal with China means that the bulk of U.S. tariffs will remain in place for the foreseeable future, leaving U.S. companies hurt by the duties no other choice but to get in line for an exemption if they want to limit the damage.

The record so far shows that it might be worth a shot: on average, importers have a one in three chance of meeting the standard set by the U.S. Trade Representative and getting an exemption or exclusion, according to an analysis by the Mercatus Center at George Mason University.

The Mercatus analysis showed that the line for exclusions is long. Only about 18 percent of 30,302 exclusion requests in the third round of tariffs on Chinese goods imposed by President Donald Trump have been decided, leaving some 25,000 still in the pending column. And the exclusion window for fourth tranche goods, which now pay tariffs of just 7.5 percent, will remain open for requests through Jan. 31.

The first three rounds of tariffs, on goods with an aggregate value of $250 billion, still pay a tariff of 25 percent. The 15 percent tariff on the fourth tranche, with an approximate goods value of $120 billion, was reduced to 7.5 percent as a result of the phase one deal.

The USTR has virtually completed work on the first and second tranches of tariffs, which together covered some $50 billion in imports — $34 billion in the first tranche and $16 billion in the second. Mercatus found that 34 percent of the 10,814 exclusion requests from the first group were approved, while 37 percent of 2,869 requests in the second won approval.

Tranches three and four of Trump’s China tariffs have a much higher proportion of goods for final consumption, but not enough cases in tranche three have been decided to provide a basis for comparison, McDaniel said. Only about 14 percent of the 30,302 requests have been decided, with a denial rate so far of 96 percent. Adjudication has not started for tranche four.

Apple Inc. fared better than most companies, winning exemptions on 10 of 15 requests filed for tranche three, a rate about twice that of other firms.

Christine McDaniel, a trade economist at Mercatus who worked at the Treasury Department and the U.S. International Trade Commission, pointed out that the goods covered by the first and second tranches were overwhelmingly capital goods and intermediate goods, both of which primarily affect manufacturers.

The criteria on which requests will be assessed have not changed: Is the good only available from China, would duties on it cause severe economic harm to a U.S. interest, and is the good strategically important or related to the Beijing’s “Made in China 2025” program?

McDaniel said a typical denial would occur in a case where a manufacturer that uses an intermediate good from China says there is no U.S. supplier for the good, and other Asian countries could not provide enough or meet certification requirements. And a denial usually would mean an increase in manufacturing costs, she said.

“For an intermediate good, there’s more room for harm to the manufacturer,” she said.

McDaniel said there is no reliable way to quantify the impact of the uncertainty on manufacturers, nor whether the tariffs have played a role in the decline in business investment. But the fact that tariffs remain on more than $300 billion of imports from China doesn’t help, nor does the possibility of “snapback” if China fails to fulfill the terms of the agreement.

“I’m not convinced that the China tariffs are over,” she said.