This week, India officially lost it GSP benefits. Combined with the Turkey GSP decision from mid-May, companies must now pay an extra $1 million a day in new taxes despite Congress’ explicit authorization to make those imports duty-free.
This week, there also were two subpar jobs reports. BLS reported just 75,000 new nonfarm payroll jobs, while ADP reported just 27,000 new private sector jobs. ADP reported that small business employment actually declined by 52,000, with nearly all the losses coming at very small companies with less than 20 employees.
The GSP announcements didn’t cause the soft labor numbers, but could make them worse. An April report based on surveys from 125 companies showed 39% of respondents expect to lay off workers – and 64% expect to delay planned hires – if GSP benefits are lost. This is a stark turnaround from the past year (69% hired new workers) and plans with GSP in place (64% expected to hire new workers).
Like the ADP report, the GSP survey job impacts vary greatly by company size. Companies with 11-30 employees were 3 times more likely to say they would lay off workers in response to GSP loss than companies with more than 75 employees.
Similarly, companies with 11-30 employees were nearly 3 times more likely to say they would delay new hires than the largest GSP importers. The trend – rising slightly as small businesses grow and then declining sharply for large companies – holds for survey responses related to investments and benefits cuts too (and mimics past survey reports during temporary GSP lapses).
A key point: it’s not that the smallest businesses are hit hardest. One-person companies are unlikely to report potential layoffs because there is no one to lay off. It’s the not-too-small companies. Those big enough to have expansion plans and investment budgets, but not big enough to follow through with them when hit with $200,000 or $300,000 in new tariffs. They are the ones that cancel investments and lay off workers in response to GSP loss.
Companies like Babco Foods in Piscataway, New Jersey. The family-owned business has grown from 25 to 32 employees in the past year and planned to open another distribution center to serve the Midwest. But nearly all of its products food products come from India, and new tariffs will squeeze already-low profit margins. Reductions in employees and benefits are one of the few viable options for companies like Babco that need to find ways to recoup costs associated with higher tariffs. There are more details on Babco, and about 2 dozen other companies, here.
Maybe the jobs reports are a blip. Maybe the companies importing from India and Turkey will find a way to avoid the negative actions they thought would be necessary if GSP benefits were revoked. But based on all the evidence over the years, higher tariffs on GSP importers will hurt – not help – jobs reports going forward.
