In spite of a recent US-China deal rolling back some new American tariffs, trade talks between the two countries continue in stops and starts and tariffs remain a prominent go-to bargaining instrument for the Trump administration.
So far, in the last 18 months, the US has rolled out two waves or tranches of tariffs on a long list of products, prompting many US businesses to ask for waivers or exemptions. According to our analysis of updated data, the most recent tranche impacts a larger list of products and, not surprisingly, has generated an even greater number of exemption requests.
Under Section 301(B) of the Trade Act of 1974 (commonly called “Section 301”), President Trump has authorized tariffs on approximately $375 billion of US imports from China. Since many US businesses can be negatively impacted by Section 301 tariffs (for example, when a manufacturer needs a specific part from China to make its own products) the Office of the United States Trade Representative (USTR) is authorized to grant relief to qualified US importers. Petitioners may submit what is called a tariff exclusion request to the USTR, which the office will then review and either approve or deny. If the exclusion request is approved, the tariff will not apply to the Chinese products that US importers purchase.
Chinese tariff exclusion requests were approved at lower rates than those for steel and aluminum
With nearly all waiver requests for tranches one and two having been reviewed (less than one percent of all requests remain pending), our analysis shows that 34 percent of tranche one requests were approved and 37 percent of tranche two were approved.
These approval rates for the first two tranches are lower than those for the separate steel and aluminum tariff exclusion requests, which were 49 and 50 percent, respectively. The steel and aluminum tariffs are imposed under a different law, section 232, and apply to nearly all US imports of steel and aluminum from all countries. The steel and aluminum tariff exclusion requests are administered by the US Department of Commerce.
More exclusion requests were filed for tranche three than the first two combined
For tranche three, USTR received 30,302 product exclusion requests before the September 30, 2019 deadline. This was more requests than the first two tranches combined, as Table 1 illustrates.
This is not surprising because tranche three included a much larger number of products on its list. Tranche three is the longest tariff list with 4,746 products, compared to 819 products in tranche one and 280 in tranche two. With more products affected, it is unavoidable that more exclusion requests would follow.
Table 1 lists exclusion requests by broad economic category, which breaks down the products into capital, consumption, and intermediate goods. Capital goods are those that help businesses produce their products and services, such as trucks purchased by a delivery firm. Intermediate products are purchased by a company and used in production, like brake pads for an automobile manufacturer. Finally, consumer products are those purchased by consumers, such as a smart phone or blender.
In the first two tranches, capital and intermediate products constituted the bulk of exclusion requests. Consumer goods were just one and two percent of the first two tranches and represent 14 percent of tranche three.
The approval rates do not vary systematically across broad economic categories. For instance, USTR approved 43 percent of capital goods requests and 28 percent of intermediate goods request in tranche one. For tranche two, those figures were 31 and 48 percent, respectively. Tranche three is the first with a material number of consumption goods. We will reassess the exclusion decisions as more are processed over time.
Tranche three has a 96 percent denial rate so far
Of the 5,309 requests that have received a decision thus far, 5,073 (96 percent) have been denied, and 236 (4 percent) approved. But it’s too early to tell whether this is a trend, since the bulk of exclusion requests (82%) are still pending.
USTR received product exclusion requests from 2,514 firms for tranche three, as Table 2 displays. Most of the firms filed only a few requests: 1,006 firms (40 percent) filed just one request, and 1,875 firms (75 percent) filed five or fewer requests.
So far, 134 companies have received approvals for their tranche three tariff exclusion requests. Half of the approvals have gone to just 25 companies. Apple alone accounts for four percent of the approvals to date: the company filed 15 exclusion requests, of which ten were approved and five were denied.
The firm with the highest number of filings was AEP Holdings, an electrical parts and components company out of Circle Pines, Minnesota. AEP filed 10,221 requests and USTR has approved one so far. Of those firms that have any decisions to date, the average firm level approval rating is nine percent.
With early 25,000 tranche three exclusion requests pending, it’s too soon to know whether the current low approval rate is an exception or a trend. Either way, we’ll be back soon to review USTR tranche three data and provide an answer.