GSP saved American companies a record $105 million in October 2018. The savings exceeded the previous 10-year high – set just two months earlier – by $12 million (13%). GSP savings are on track to exceed $1 billion in 2018, likely for the first time in GSP’s 40-plus year history.
As recently as 2015, GSP savings averaged just $56 million per month. But they have grown steadily following a 2.5-year renewal in 2015. The Trump administration’s extension of GSP to travel goods from all countries in mid-2017 and Congress’ 3-year renewal legislation earlier this year led imports to really take off, as shown below.
The steady savings growth starting in 2015 – and then accelerating in 2017/2018 – shows the importance of long-terms renewals and minimizing program lapses. GSP savings trended downward from 2012-2015, due largely to its expiration from August 2013 to July 2015. (Savings figures in those months reflect tariffs paid – and later refunded – once GSP was renewed.)
Did China tariffs impact growing GSP savings? Uncertainty about tariffs on imports from China may have as much to do with the October savings jump as the certainty provided by GSP renewal. Three rounds of “Section 301” tariffs have been added to Chinese imports in recent months: a 25% tariff on some products in July (List 1); another 25% tariff on other products in August (List 2), and a 10% tariff on even more products in September (List 3).
GSP countries compete directly with China on many of the covered products. In fact, nearly 70% of GSP imports in 2018 are products included on one of those lists. October was a banner month for GSP imports of products now subject to additional 10-25% tariffs on imports from China:
- GSP imports of “List 1” products grew by 10% compared to 2017
- GSP imports of “List 2” products grew by 27% compared to 2017
- GSP imports of “List 3” products grew by 29% compared to 2017
Each of those year-over-year GSP growth rates was the highest of any month yet in 2018. Conversely, GSP imports of products not on any China tariff list grew by 8% in October. That is not bad, but it is a middle-of-the-pack result (4th of 10 months) and stands out given compared to the other three product groupings.
It this a short-term bump or the start of a long-term trend (at China’s expense)? It is hard to draw too many conclusions from one month of data. GSP increases of Section 301 products could be an anomaly, part of a several-month bump, or the start of a long-term sourcing shift from suppliers in China to competitors in GSP countries.
The Administration’s own policies may be the biggest impediment to a long-term shift out of China and into GSP countries such as India, Indonesia, Thailand, and Turkey. Each of those countries is under Administrative review that could result in lost GSP benefits, in whole or in part, with just 60 days notice. Any such decision would make imports from China more competitive (again).
The uncertainty about future GSP benefits may discourage companies from identifying and qualifying new suppliers in GSP countries. After all, who wants to spend the time and money to find suppliers that also may see tariff hikes in the near future? For American companies that have increased sourcing under GSP, any decision to revoke GSP duty-free treatment could push them right back to Chinese suppliers.
In conclusion, October was a record-breaking month for GSP, but future growth is at risk due to the country reviews. To the extent the Administration wants to encourage US companies to import less from China, it should consider the important role GSP benefits for countries such as India, Indonesia, Thailand, and Turkey may play in long-term sourcing decisions.