With the calendaring turning to June, GSP expiration now enters its 18th month, the 2nd longest lapse in history. GSP has often expired and been renewed retroactively, but Congress usually acts within 6 months.
That Congress would allow GSP to remain expired for so long during a global pandemic, skyrocketing shipping costs, and spiking inflation is particularly hard to explain to small businesses that are being hit with cost pressures from all sides.
That GSP remains expired while both Congress and the Administration seek ways to help companies find sources outside of China is incomprehensible. Policymakers may soon view GSP expiration as a squandered opportunity to provide positive incentives for desired shifts. The mix of factors that made reconfigured supply chains possible – and often necessary – may not come again.
Expiration is the biggest – and most visible – factor affecting GSP, but it is far from alone. Below are estimated tariffs paid from January 2021 to March 2022 (latest available data) due to different types of past GSP decisions:
- $1.35 billion due to expiration
- $541 million due to one-off GSP loss for individual products (e.g., competitive need limitations, or CNLs)
- $883 million due to country suspensions for India, Turkey, and (partial) Thailand
- $325 million due to one-off GSP loss for individual products from India or Turkey (i.e., products wouldn’t get GSP back even if the countries did)
That’s over $3 billion in extra tariffs paid in 15 months that make China more competitive, increase inflationary pressures in the United States, and reduce GSP’s potential development impacts.
Renewal helps by refunding the expiration-only costs. The CNL Update Act – which 54 House Members just endorsed – would help restore GSP for some of those individual products and prevent others from losing GSP in the immediate future. Renewal+CNL changes also could help reinvigorate talks with countries such India, Turkey, and Thailand related to reinstated GSP benefits (the U.S. can’t offer much while GSP remains expired).
The graphics below break down the tariff costs by state, both for expiration alone and “all in” costs associated with all those past decisions.
The differences are stark:
- New York’s tariff costs jump from $103 million (expiration only) to $359 million (all-in)
- Texas’ tariff costs jump from $101 million (expiration only) to $269 million (all-in)
- South Carolina’s tariff costs jump from $20 million (expiration only) to $70 million (all-in)
- Michigan’s tariff costs jump from $12 million (expiration only) to $54 million (all-in)
- Kentucky’s tariff costs jump from $11 million (expiration only) to $42 million (all-in)
Small states see some of the biggest jumps by percentage:
- South Dakota’s tariff costs jump from $98,000 (expiration only) to $4.9 million (all-in)
- New Mexico’s tariff costs jump from $295,000 (expiration only) to $2.8 million (all-in)
- Vermont’s tariff costs jump from $418,000 (expiration only) to $2.5 million (all-in)
- Nevada’s tariff costs jump from $3.8 million (expiration only) to $15 million (all-in)
GSP expiration hurts many American companies and workers in developing countries, but these “other GSP decisions” over the years are even more costly.
If Congress is serious about both helping U.S. companies find alternatives outside China and reducing costs for Americans, it should renew GSP and include changes (e.g., the CNL Update Act) to bring as much trade back under the GSP umbrella as possible.