This morning, BLS reported U.S. inflation of 8.6% in May, the highest rate since 1981. It is not just a US issue – earlier this week the OECD doubled its 2022 inflation estimate for member countries from 4.5% to 9%. GSP expiration raises prices, which in turn contributes to higher US inflation. At the same time, global inflation raises prices for GSP imports, which can result in GSP loss under “competitive need limitation” (CNL) rules.
To help fight inflation now and in the future, Congress should renew GSP immediately and include the CNL Update Act provisions. The CNL Update Act would help restore GSP for some products and prevent others from losing GSP in the immediate future. A bipartisan group of 54 House Members recently endorsed the CNL Update Act.
GSP expiration certainly isn’t *the* driver of US inflation, but significantly raise prices for key products with high tariffs and/or where GSP countries account for a large share of total US imports. This is especially true when the primary alternative – China – also faces Section 301 tariffs. Here are some products where the average tariff for total US imports increases significantly due to GSP expiration:
- Backpacks: imports claiming GSP were around $300 million – and accounted for 37% of all US backpack imports – in the the first 4 months of 2022. Backpacks face 17.6% tariffs without GSP. China is the primary alternative and also accounted for 37% of US imports despite facing tariffs of about 43% due to Section 301 tariffs. With 3/4 of US imports facing extra tariffs today, the average tariff on all imported backpacks is 26% – an unavoidable costs for families gearing up for summer camps and the next school year.
- Tropical plywood (e.g., meranti): a key raw material for RV and other manufacturers – US imports claiming GSP were $127 million in the first 4 months of 2022. The US International Trade Commission determined these products are not made in the United States, and 85% of all US imports claimed GSP so far in 2022. These tropical plywoods face 8% tariffs without GSP, and unavoidable tax that raises US production costs given the limited number of countries where these woods grow.
- Luggage: with travel picking back up, so are luggage imports. Trunks and suitcase imports claiming GSP were around $140 million – and accounted for 35% of all US imports – in the the first 4 months of 2022. Luggage faces 20% tariffs without GSP. China is the primary alternative and accounted for 44% of US imports despite facing tariffs of 45% due to Section 301 tariffs. With 80% of US imports facing extra tariffs today, the average tariff on all imported backpacks is 29% – a level of added costs that must be passed on to consumers eager to travel more.
Global inflation can negatively impact future GSP benefits since CNLs are based on total import values and do not give any consideration to changes in volume. The CNL threshold will only increase 2.5% in 2022, a huge problem when inflation and commodity prices are surging. Here are just some of the products where rising prices create a high risk of exceeding the 2022 CNL threshold ($205 million):
- Ferrosilicon manganese from Georgia: a key raw material for steel manufacturers, US imports from Georgia were $108 million in the first 4 months of 2022. The import price in 2022 was $2.16/kg, compared to just $0.98/kg for the same period in 2021. Ferrosilicon manganese would not be at risk of exceeding the 2022 CNL threshold at historical prices, but now seems nearly guaranteed.
- Citric acid from Thailand: a key raw material for food, beverage, and others manufacturers – think anything that smells like citrus! – US imports from Thailand were $90 million in the first 4 months of 2022. The import price jumped to $3.30/kg in 2022 from $1.23/kg for the same period in 2021. There would be no risk of exceeding the 2022 CNL threshold at historical prices but – due to CNLs – high prices contributing to US inflation TODAY can lock in higher future costs too.
- Glycerol and industrial fatty acids from Indonesia: raw materials used by numerous manufacturing sectors, US imports from Indonesia were $62 million and $96 million, respectively, in the first 4 months of 2022. The import price for glycerol jumped to $1.47/kg in 2022 from $0.69/kg for the same period in 2021, while industrial fatty acid prices jumped to $1.50/kg from $0.96. Volumes are rising, but it is inflation and commodity prices that make the increases stand out – and threaten future duty-free treatment.
All these prices are before tariffs and sky-high shipping costs. Ferrosilicon manganese faces a 3.9% tariff without GSP, so the expiration cost rose from 3.8 cents/kg in 2021 to 8.4 cents/kg in 2022. The import price for the tropical plywood mentioned above from Indonesia jumped to $1,080/cubic meter in 2022 from $580/cubic meter in the same period in 2021. As a result, the unit value cost of GSP expiration in 2022 is about $86/cubic meter! It also will exceed the 2022 CNL cap, creating yet another negative feedback look where higher prices lead to lost GSP and yet higher prices despite GSP renewal.
Renewal would eliminate many high tariffs that contribute to inflation TODAY, and updating CNLs would help mitigate the risk that rising prices today will lock in higher tariffs tomorrow. Congress should renew GSP immediately, including the CNL Update Act provisions.