The potential GSP expiration is 7 months away, but companies are already in a very tough spot. 2018 pricing and sourcing decisions must be made now (or soon), but companies can’t know whether their imports will remain duty-free. Congress’ tendency to wait until the last minute to act, or retroactively after the fact, doesn’t help the decision-making process.
Ultimately, companies have two choices: trust Congress to renew GSP in 2017 or raise prices to reflect potential tariff increases. Both options carry risks, as shown by early responses to a new survey launched last week.
Companies that maintain current pricing could find themselves with lower or even negative margins if Congress fails to renew GSP by December 31. For example, a representative from Oxan Inc. reported that margins are already under pressure due to soft retail spending and any additional margin erosion will be difficult to handle. Without the ability to raise prices, “financing an extra duty in an increasing interest rate environment will test our profitability and viability as a company.” GSP expiration may be 7 months away, but Oxan must place orders by June 15 – just 2 weeks away! – for delivery in 2017.
Companies that “play it safe” by pricing in tariffs risk reduced competitiveness now even if Congress renews GSP by the deadline. A representative from Kervan USA summarized the impact of the uncertainty:
We are trying to reflect the duties into prices, but this is leading to a decrease in sales. So the growth of our company will be affected and we will not be able to hire more people. We were planning to hire at least 3 new employees.
In short, steps taken now to minimize risks of another GSP expiration are preventing new American jobs.
Fortunately, most companies have some time to make these decisions: about half of the respondents to date indicated a 3-4 month delay between ordering and delivery. So those companies can hold off until late summer or early fall before they start placing orders that could be hit with extra tariffs. But every day the uncertainty impacts more American companies and workers.
Congress should pass GSP renewal legislation immediately so companies can stop worrying about renewal and instead focus on growing their business and creating American jobs.