The China/Section 301 diversion is real. So far in 2021, GSP imports are up 12% for products where Chinese imports face Section 301 tariffs but down 7% for products where Chinese imports don’t face any new Section 301 tariffs. It is impossible to know how much more GSP imports might be up (or Chinese imports down) if GSP expiration hadn’t forced American companies to pay tariffs for those products too. We wrote about how GSP renewal must be a part of any “China trade” conversation here.

Imports into 38 states (plus Puerto Rico) paid at least $1 million in tariffs due to GSP expiration. The map below shows estimated tariffs paid for products claiming GSP by state.

It is critical that Congress renew GSP – with refunds for tariffs paid – as soon as possible. We strongly encourage GSP importers hurt by expiration to answer our new survey here. As always, no company-specific details will be published without permission.

The top states by GSP savings have been fairly consistent over the years. California accounts for more than a quarter of GSP savings – about as much as the next 4 states (Florida, New York, Texas, New Jersey) combined. Washington and Tennessee have moved into the top 10 states in 2020, replacing Pennsylvania and North Carolina.

Savings are down sharply, from $555 million in 2019 to $407 million in 2020. The map below shows the widespread declines, with the Mountain West being a notable exception. Washington, Idaho, Wyoming, Utah, Colorado, and Arizona form a string of growth states from the Canadian to Mexican borders. Colorado’s savings increased over 150% from 2019, largely driven by a jump in backpack imports. Massachusetts is the only other state where GSP savings are up in the first half of 2020.

Savings declined by over 40% in more than 20 states, including a whopping 78% in Vermont. GSP savings also declined by 67% in Montana and Oklahoma, 63% in North Dakota, 61% in Michigan, 60% in Minnesota, and 52% in West Virginia.

Declines are NOT due to Covid-19. American companies have paid up to $183 million in extra tariffs in 2020 due to GSP suspensions for India, Turkey, and Thailand. In the first half of 2019, tariffs paid due to suspensions (India and Turkey only) were about $35 million. Add those potential savings to actual savings in both years, and the first half totals were nearly identical ($590 million) in spite of Covid-19-related declines. Our next post will dig into state-by-state costs in 2020 associated with the suspensions.

In a major shift from 2018, consumer goods were the largest category of GSP imports by both value ($6.6 billion) and savings ($512 million). Consumers goods accounted for 32% of total GSP imports, up from 24% the prior year. Because average tariffs (without GSP) are much higher (7.7%), consumer goods accounted for about half of all GSP savings. Expanding GSP to cover travel goods in 2016/2017 has led to steadily increasing consumer goods imports over the last several year.

Industrial materials ranked second among GSP products both by import value ($6.0 billion) and estimated tariff savings ($256 million). Industrial materials were the largest GSP imports, usually by a wide margin, in each of the last 10 years. The reason industrial materials slipped to #2 is clear from the “top countries”: 5 months of GSP for India eliminated more tariffs on materials used by American manufacturers than full-year GSP for any other country.

Agricultural and food products ranked third among GSP products by import value ($2.9 billion) and estimated tariff savings ($116 million). Among the more surprising data points: Ecuador was the second-largest source of food and agricultural products in 2019 by the value of GSP savings, primarily on tropical plants such as taro, mangoes, and guavas.

Capital goods ranked fourth among GSP imports by value ($2.8 billion) and savings ($83 million) in 2019. Despite similar import values, GSP savings on capital goods were much lower than GSP savings on agricultural and food products due to lower average tariff rates (3.0% versus 4.0%, respectively). India was the second-biggest source country in terms of tariff saving on capital goods, again demonstrating how American manufacturers are bearing the brunt of the decision to end GSP for India.

Autos and parts ranked fifth among GSP imports by value ($2.3 billion) and savings ($66 million) in 2019. Passenger vehicles are not eligible for GSP, so imports tend to be concentrated among parts such as engines, tires, and wire harnesses. Not surprisingly, states with a heavy automotive presence such as Michigan and Tennessee are among the top importers by GSP savings on these components and parts.

Despite overwhelming congressional support for GSP renewal in 2018, the Trump administration has taken actions that will gut GSP benefits for many American companies. Last week, USTR announced its intent to terminate GSP benefits for India and Turkey.

[Given the risks to those countries and others – companies importing under GSP are strongly encouraged to add their name to our free GSP supporter list]

Imports from India and Turkey accounted for over $330 million of those tax savings for American companies in 2018 – and there could be more bad news to come. There are “pending reviews” for other major GSP suppliers such as Indonesia and Thailand that accounted for over $310 million in GSP savings last year. (Decisions could be announced at any time.) As such, less than 40% of GSP benefits came on products where there is no an immediate risk of losing GSP.

For many states, the situation is even more dire: India and Turkey combined to account for more than 60% of GSP savings for companies in Nebraska (77%), New Mexico (70%), North Dakota (64%), Missouri (64%), Iowa (63%), Delaware (63%), and Oklahoma (61%). House Members from those states voted 25-0 in support of the 2018 GSP renewal bill (2 were not present), but their reauthorization support could be undermined by the Admistration’s actions.

When you include countries under review, 43 states (!) had at least half of all GSP savings in 2018 come from countries at risk of losing GSP. In addition to states listed above, over 80% of GSP savings are at risk for companies in Maine (87%), Tennessee (85%), Mississippi (84%), Alaska (83%), and Minnesota (81%). Again, there was unanimous support among voting House Members from those states for the 2018 reauthorization bill.

Some states such as Georgia and North Carolina saw much larger increases in GSP imports and savings compared to the previous year, as shown in the graphic below.

GSP saved Georgia companies $3.9 million in December, up $1.3 million (49 percent) compared to one year earlier. Metal products from Brazil, luggage from Thailand,  and chemicals from India contributed the most to Georgia’s GSP savings increases.

GSP saved North Carolina companies $2.0 million in December, up $577,000 (39 percent) compared to one year earlier. Chemicals from the Philippines, furniture fittings from Thailand, and wood products from Indonesia contributed most to North Carolina’s GSP increases.

In addition to Georgia and North Carolina, companies in 26 other states saw GSP savings increase by at least 20 percent, including: California, Connecticut, Florida, Idaho, Indiana, Iowa, Kansas, Louisiana, Maine, Maryland, Minnesota, Missouri, Montana, Nebraska, Nevada, New Jersey, Ohio, Oklahoma, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, and Wyoming.

Savings on GSP imports from Indonesia increased by 31 percent compared to December of last year. California companies’ alone imported $4.6 million in silver jewelry under GSP in December. GSP eliminated about $1.5 million in import taxes on mangoes and guavas in December. About two-thirds of those savings were on imports into New Jersey.

*** REMINDER: GSP EXPIRED EFFECTIVE JANUARY 1.***

The House passed GSP renewal legislation in February, but the Senate must pass legislation for GSP benefits to resume. Please use our Contact Congress tool to write your Senators about GSP renewal; answer our brief survey on how GSP expiration impacts you, and/or sign up for the free GSP supporter list to show the broad support for renewal.

• Kona Bicycle in Ferndale, Washington: GSP expiration cost Kona $580,000 and delayed new product developments. GSP renewal allowed Kona to invest in new R&D equipment and hire 5 workers in products development and sales.
• Golden Country in Chicago, Illinois: After paying over $1 million in extra import taxes during GSP expiration, renewal allowed Golden Country to give employees raises and purchase new warehouse equipment and trucks.
• Fab-Line Machinery in Nashville, Tennessee: GSP expiration cost Fab-Line $350,000 in extra taxes and forced the small business to lay off a worker. GSP renewal allowed Fab-Line to hire 2 new workers and lower costs for its customers: American manufacturers.

Photo by Lehigh Valley, PA [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

On Monday, President Donald J. Trump declared July 16-22 to be “Made in America” week and held an event at the White House highlighting American-made products. Yet such events often overlook the benefits of imports, including programs such as GSP, in creating those American-made products.

Take BTR International, a small business in New York City that imports engine-ready camshafts from Brazil. GSP eliminates the 2.5 percent tariffs those imports would otherwise face. GSP savings help BTR provide the best-possible prices to customers, including iconic American manufacturers such as Mack Trucks.

Mack is among the world’s largest manufacturers of heavy-duty trucks, engines, and transmissions. Founded in 1900, Mack has an engine plant in Hagerstown, Maryland and assembles all its trucks for the North America market in Macungie, Pennsylvania. Mack exports its trucks throughout North and South America, Australia, and Africa.

The indirect savings from GSP for Mack are emblematic of the broader automotive industry. In 2016, GSP eliminated $78 million in taxes on auto parts ranging from camshafts to wire harnesses to brakes parts and tires. Michigan, California, and Tennessee were the principal beneficiary states.

By eliminating such taxes, GSP provides the U.S. auto industry a competitive edge. (Our GSP Supporter List includes numerous companies importing auto parts.) Without it, the higher costs would trickle through the supply chain, from small importers like BTR to major producers like Mack and eventually to the end customers at home and abroad. Such cost increases could lead to diminished sales and a cutback in U.S. auto manufacturing capacity.

When GSP expired in 2013, Fab-Line was forced to raise prices to compensate for those new import taxes. Ultimately the company paid about $350,000 in new tariffs. This hurt the company, which had to lay off one employee, and the American manufacturers that now had to pay more for Fab-Line’s equipment.

The retroactive renewal allowed Fab-Line to hire 2 new workers – a service manager and a service engineer. Yet Fab-Line President Patrick Canning says another potential expiration threatens the company again:

“If the GSP does not get signed I will raise my pricing to pay for the duties and of course that will have a negative impact on my business.”

GSP may not expire until December 31, but the decision date is much sooner for Fab-Line. According to our newest survey, Fab-Line will start placing orders for 2018 delivery in mid-August. If Congress has not renewed GSP before the August recess, Fab-Line will be forced to guess whether orders will be subject to extra taxes.

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.

(Haven’t answered the survey yet? Please take 1 minute to do so here!)

In the first quarter of 2017, GSP imports were basically flat by value and up about 2 percent in terms of tariff savings compared to 2016. The graduation of Uruguay and Venezuela from GSP effective January 1, 2017 contributes to the slow year-over-year growth.

Despite the mixed growth of GSP import values and savings, some states such as Wisconsin and Michigan saw large increases in GSP imports and savings compared to March 2016, as shown in the graphic below.

GSP saved Wisconsin companies $1.3 million in March, up over $420,000 (49 percent) compared to one year earlier. Optical equipment from the Philippines, metalworking machinery from Brazil, and ceramic plumbing goods from India contributed most to Wisconsin’s GSP increases.

GSP saved Michigan companies $2.8 million in March, up over $620,000 (28 percent) compared to one year earlier. Engines from Thailand, wire harnesses from Indonesia, and machine tools from India contributed most to Michigan’s GSP increases.

In addition to Wisconsin and Michigan, companies in 12 other states saw GSP savings increase by at least 20 percent, including: Alabama, Arkansas, Connecticut, Delaware, Indiana, Louisiana, Nevada, New Hampshire, New Mexico, North Dakota, Utah, and Vermont.

Savings on GSP imports from Jordan increased by 157 percent compared to March last year. Illinois companies’ purchases of chickpeas accounted for more than 10 percent of GSP imports from Jordan. GSP eliminated about $770,000 in import taxes on wire harnesses in March, with about 20 percent of those savings on imports into Tennessee.

More monthly GSP import and savings highlights are on our Graphics page.

REMINDER: GSP expires at the end of 2017. Click here to learn about ways to take action and support GSP renewal this year.