“We had a slight increase in bike sales prices but not enough to cover the outrageous tariff rates,” reported Woombikes’ Jesse Rendon. “Given the current economic crises we are in, having to pay additional fees for tariffs is like putting salt on a wound.”

Founded in 2014, Woombikes already has grown to 60 employees. It was named to the Inc. 5000 fastest-growing private companies in 2019, 2020, and 2021. Yet millions of dollars in new tariffs hurt, and not just Woombikes. Coalition for GSP data shows over $24 million in tariffs paid on bicycles due to GSP expiration from January 2021-April 2022. Expiration costs are accelerating: year-to-date tariffs on bicycles (generally) are 163% higher in 2022 than 2021, and tariffs on children’s bikes specifically are 201% higher.

Congress can help by passing retroactive GSP renewal legislation ASAP. According to Rendon, “Having the $1.9M refunded will allow me to pay down my debt, as well as hire new employees to scale the company to support our current growth. We also will be able to offer more benefits like company matching for our new 401(k) plan and possibly bonuses for our employees.”

If you’re a GSP importer, please help by answering the survey/sharing your story here. No company-specific information is shared without permission (which Woombikes granted). Even if responses cannot be shared publicly, they help inform the Coalition for GSP’s conversations with policymakers about the importance of renewing GSP.

• Top 5 states by tariffs paid due to expiration: California ($287 million), Florida ($98 million), New York ($80 million), Texas ($80 million), Georgia ($61 million)
  
  
• Top 5 states by highest average tariff paid due to expiration: Colorado (12.1%), Maine (11.0%), Wisconsin (9.3%), Montana (9.1%), Utah (9.0%)
  
  
• Top 5 source countries by value of GSP imports: Indonesia ($3.9 billion), Thailand ($3.3 billion), Cambodia ($2.7 billion), Brazil ($2.5 billion), Philippines ($1.9 billion)
  
  
• Top 5 source countries by value of (eventual) tariff savings: Cambodia ($268 million), Indonesia ($218 million), Thailand ($139 million), Philippines ($121 million), Brazil ($94 million)
  
  

Import growth in 2021 was massive. Total U.S. goods imports grew by 21%, while those from GSP countries grew by 35%. Yet “competitive need limitations” (CNLs), which lead to GSP loss for specific products, only grew by 2.6%. As a result, $1.8 billion of the currently eligible imports exceeded the 2021 CNL and another $1.5 billion likely will exceed the 2022 cap based on import levels and trends, putting a huge share of future GSP benefits at risk:

• Top 5 states by share of benefits at risk for exceeding the 2021 CNL: Mississippi (42%), Louisiana (26%), Florida (20%), New York (15%), Virginia (13%)
  
  
• Top 5 states by share of benefits likely at risk from the 2022 CNL: Maine (37%), Colorado (27%), Iowa (27%), Hawaii (19%), Michigan (15%)
  
  

Representatives Stephanie Murphy (D-FL) and Jackie Walorski (R-IN) introduced the bipartisan CNL Update Act (H.R.6171), which would amend the CNLs to grow more in line with historical trends. Not only would the CNL Update Act help preserve GSP for much of that “at risk” trade, it would help restore GSP for some of the $10 billion (!!!) in imports that lost GSP in the past due to product reviews:

• Top 5 states by potential GSP savings increase for products that “should” be restored by H.R.6171: Alaska (84%), South Dakota (72%), Michigan (41%), Maryland (38%), Mississippi (42%)
  
  
• Top 5 states by potential GSP savings increase for products that “may” be restored by H.R.6171: South Dakota (4,565%), Wyoming (218%), Maryland (213%), New York (196%), Minnesota (166%)
  
  

While the CNL Update Act has a chance to “preserve and restore,” there remains considerable down-side risk. The GSP renewal language in the House’s America COMPETES Act not only maintains the current CNL thresholds, but creates a high likelihood of full or partial termination for key GSP supplier countries, particularly Brazil, Cambodia, Myanmar, Philippines, and Thailand. Loss of GSP due to current CNL rules, combined with loss for those countries, would decimate the program:

• States where at least 90% of current GSP benefits are at risk: Wisconsin (-97%), West Virginia (-96%), Montana (-92%), Utah (-91%)
  
  
• States where at least 80% of current GSP benefits are at risk: Colorado (-88%), Connecticut (-86%), Arkansas (-85%), Hawaii (-84%), Wyoming (-83%), Maine (-83%), Alaska (-82%), Kansas (-82%), Mississippi (-82%), Texas (-81%), Indiana (-81%)
  
  
• States where at least 70% of current GSP benefits are at risk: Nebraska (-79%), Georgia (-79%), North Carolina (-79%), Michigan (-79%), Washington (-78%), Rhode Island (-78%), Nevada (-78%), Illinois (-77%), Alabama (-76%), New Mexico (-76%), California (-76%), Minnesota (-75%), Tennessee (-75%), Virginia (-74%), Massachusetts (-74%), Oklahoma (-74%), Kentucky (-73%), South Dakota (-72%), Florida (-72%), Oregon (-71%)
  
  

This last set of stats shows that GSP “renewal” can’t be the only priority. It must be renewed in a way that doesn’t decimate the program in the next 2-3 years. After all, it’s impossible to “promote development through trade” with a program that covers no trade.

It’s not an insignificant cost: Ecuadorian roses faced up to $18 million in tariffs in 2021 due to GSP expiration. Like many products, imports rose throughout the year, so tariff costs for this Valentine’s Day likely will be much higher than last year. This has a big impact on the overall market since tariffs without GSP are 6.8% and Ecuador accounts for about 35% of total U.S. imports of roses. Put differently, GSP lapse has the same effect as adding 2.5% to the cost of all imports…and there aren’t too many U.S.-grown roses available in February.

But it could get worse still for Valentine’s Days-to-come: rising imports mean Ecuadorian roses surpassed GSP’s “competitive need limitation” (CNL) in 2021. If Congress renews GSP without updating its CNL rules – and there’s a bill that would do just that – permanent 6.8% tariffs could be applied to Ecuadorian roses on November 1.

Roses are far from alone in potential negative impacts from CNLs: nearly 20% of all GSP imports either exceeded the 2021 CNL cap or should exceed the 2022 cap based on import levels and trends. That’s because imports from GSP countries grew 35% in 2021 (versus 21% from all countries), and inflation was 7.5%, yet the CNL threshold grew by just 2.6%. Already, as much as 35% of potential GSP imports face tariffs due to these product-specific exclusions, further showing the need to update the rules as part of GSP renewal.

No one likes to pay more than necessary for beautiful roses. Congress can help spread the love by renewing GSP and updating the CNL rules as soon as possible.

The letter was led by House Ways and Means Committee Members Suzan DelBene (D-WA) and Brad Wenstrup (R-OH) and letter signers include:

• 43 Democrats and 32 Republicans in 34 different states
• 19 Ways and Means Members (10 Democrats and 9 Republicans)
• 7 of 11 Democrats and 5 of 8 Republicans on the Ways and Means Trade Subcommittee

“The letter shows that strong, bipartisan support remains for win-win outcomes on trade, such as restored GSP for India” said Dan Anthony, Executive Director of the Coalition for GSP. “Program users are hopeful the letter will help advance U.S.-India discussions as well as refocus attention on the need for Congress to renew GSP.”

The letter supports a framework to restore GSP soon after Congress renews the program if there can be tangible progress on resolving market access issues that led India to lose its GSP back in 2019.

But the facts show that restored GSP for India would help American workers, manufacturers, farmers, etc. in its own right:

• Americans have paid up to $800 million in extra tariffs due to lost GSP for India. For example, one of the categories facing the most tariffs are agricultural chemicals, hurting both the manufacturers that turn bulk products into retail forms and the farmers that must pay more for the end product. One repeated refrain from companies: tariffs didn’t move sourcing out of India, but higher costs led importers to scale back expansions or other domestic manufacturing plans. In part because…
  
• Tariffs from lost GSP for India disproportionately harms American manufacturers. Over 75% of (previously) GSP-eligible imports from India are raw materials, components, and parts used to produce other things in the United States. For the current GSP countries, the figure is closer to 50%. The imports-as-inputs shares are even higher in big manufacturing states such as Texas (83%), Ohio (84%), Pennsylvania (89%), and Michigan (95%). Lost GSP for India make American manufacturers less competitive in the US and export markets.
  
• The pain appears very one-sided – on the wrong side – as imports from India are rising (likely due to China tariffs). Americans are paying more and scaling back investments, but imports of (previously) GSP-eligible imports from India are up 20%+ compared to before GSP was terminated. Why? Probably because 92% of those imports would face Section 301 if imported from China. New 4% tariffs on India don’t seem so bad compared to 25% tariffs on China for similar products. Imports from India of products facing 25% when imported from China have driven recent import growth.
  
• India is still very much a developing country, and Covid has made the situation worse. According to the World Bank, in 2019 India’s per capita income was just $2,120 – about the same as Ghana, Nigeria, and East-Timor. According to Pew Research, the number of people in India with incomes of $2 or less a day increased by 75 million, with a total of 134 million now living on less than $2 a day. Another 1.162 billion people in India – 3.5 times the entire US population – live on between $2-10 per day.

Some facts on GSP expiration:

• American companies paid at least $760 million in extra taxes from January to September 2021 due to GSP expiration. The breakdown of tariffs paid by state is available here.
  
• Tariffs due to GSP expiration primarily affect small businesses. Past research has shown the typical GSP importer has 10-15 employees and saves $100,000-$200,000 annually as a result of the GSP program. Small businesses – often supplying niche products – dominate the over 300 American organizations that sent a letter to Congressional trade leaders urging retroactive GSP renewal in late September.
  
• Retroactive GSP renewal would provide meaning relief to companies dealing with supply chain disruptions, higher freight costs, and other inflationary pressures. While tariffs are not the driver of these issues, refunding tariffs paid would help small businesses in particular that do not have the resources to pay tariffs without passing the costs along in the form of higher prices.

The “temporary” GSP lapse could lead to permanent closure for Bueno of California, which already has paid over $800,000 in extra tariffs due to GSP expiration. That is a massive amount for the 20-person company in Fullerton, California, which sells handbags, wallets, and soft carry-all luggage both online and through major retailers in the United States and Canada. For Bueno, new costs have meant declining orders, layoffs, and canceled investments – and possibly worse in the near future.

I might close the company once our lease expires. The US government is not friendly to small business owners.

Bueno of California President Joseph Pagliaro

The feeling that tariffs are unavoidable is particularly strong in (though not limited to) the travel goods industry. Section 301 remedies imposed on China starting in 2018 now raise tariffs on travel goods by up to 45%. Like many others, Bueno found new suppliers in India and Cambodia to avoid these “outrageous” tariffs. Then India’s GSP was terminated in 2019, raising tariffs on those products. Then Congress allowed the entire GSP program to lapse at the end of 2020, raising tariffs on Cambodian too. Not to mention a global pandemic that has reduced demand for travel-related products such as luggage. There are no good options, and Bueno is now buying more from China despite the 45% tariffs.

Reduced orders hurt GSP’s development goals in Cambodia, whose GDP per capita of $1,513 in 2020 was about 42 times smaller than the United States. After years of growth, Cambodia’s GDP per capita declined 8% in 2020, more than three times the 2.6% decline in the United States. Bueno’s contract factories, which employ mostly women, must pass U.S. safety and social compliance audits done by independent audit company. These are “good jobs” at risk for vulnerable populations that desperately need them.

While Congress can renew GSP “retroactively,” decisions such as “close the business instead of renew the lease” are not so easy to undo. Congress must renew GSP before it is too late for all the companies in Bueno of California’s situation.

Note: this example came from a new Coalition survey on expiration impacts. It was published with permission. GSP importers are encouraged to take the survey here – no company-specific details will be published without such permission.

Triad Magnetics manufactures transformers and inductors for American producers of medical equipment, the power grid, renewable energy and transportation systems. It employs 30 workers in California doing design, manufacturing, and distribution. In 2010, Triad Magnetics moved manufacturing of its main product line – about $7 million/year – from China to the Philippines due to GSP benefits. Without GSP, the Philippines is not as competitive.

Triad Magnetics’ history of creating jobs, raising environmental standards, and creating economic opportunities for women is a textbook example of what GSP benefits are meant to promote. As shared by company president Bill Dull:

“When we opened our Philippine factory in 2010 there was a line around the block with applicants. Many Filipinos are forced to work overseas as they can’t find work at home, so moving 1,500 jobs out of China to the Philippines was a very welcome move.

Furthermore, we treat our employees well. We offer transportation, health care, PTO and recreational benefits. The majority of our workers as well as line-leaders, supervisors and management team are women. They are paid equally to men doing the same jobs and are afforded equal advancement opportunities.

Our Philippine factory is ISO14000 which is a family of standards related to environmental management that exists to help organizations (a) minimize how their operations (processes, etc.) negatively affect the environment (i.e. cause adverse changes to air, water, or land); (b) comply with applicable laws, regulations, and other environmentally oriented requirements; and (c) continually improve in the above.“

Perhaps ironically, it is discussions about how to add new provisions on these topics (e.g., environment) that are holding up renewal and undermining this GSP success story.

And expiration impacts are not limited to the Philippines. Triad Magnetics has been forced to delay new hires and investments in California. Its president expressed the feelings of many:

“Working through COVID in a “critical Infrastructure” market has been challenging. The continued delays reinstating GSP simply add to the challenges, stress and frustration that we are already dealing with. Frankly as an ordinary citizen trying to run a business, it’s very hard to understand why it’s taking so long to reinstate GSP knowing that it has bi-partisan support and the last time it was reinstated Congress passed the legislation something like 98% yes to 2% no.” (emphasis added)

GSP expiration is a clear lose-lose outcome (except for some producers in China). Congress must pass a GSP renewal bill ensures companies like Triad Magnetics can create jobs and opportunity in Philippines and the United States. And it must do so as soon as possible to limit the (already significant) damage.

Note: this example came from a new Coalition survey on expiration impacts. It was published with permission. GSP importers are encouraged to take the survey here – no company-specific details will be published without such permission.

GSP benefits have become even more important in recent years since Altus Brands completely stopped buying this product from China due to 25% Section 301 tariffs. In 2020, GSP saved Altus Brands over $25,000 in eliminated tariffs. The company’s imports also further GSP’s development goals: it purchases from a factory that offers benefits and higher pay than other local factories. It’s good for workers in the Philippines and the United States, since the high-quality products command a higher price and help support other Made in the USA product lines.

But GSP expiration threatens all of this. Altus raised prices to cover the $14,000 (and growing) in extra tariffs paid. It has lost sales at home and in export markets (e.g., Canada, Germany, and Russia), which in turn led to reduced purchases from the Philippines.

According to company president Gerand Lemanski, it could get worse yet: “Without renewal of GSP my product is not competitive in the US market and I will have to cease selling this product within a year. That will result in letting one production person go.”

Unfortunately, Congress recently recessed until mid-September. Altus Brands’ experience shows why it must make GSP renewal an immediate priority when it returns.

Note: this example came from a new Coalition survey on expiration impacts. It was published with permission. GSP importers are encouraged to take the survey here – no company-specific details will be published without such permission.

Due to GSP expiration, Ciranda has paid over $209,000 in extra tariffs on imports of tapioca powders and syrups, coconut products, rice syrup and powders from Brazil, Pakistan, Philippines, and Thailand. The need to pass these costs onto customers led sales to fall. Even if tariffs paid (eventually) are refunded, those lost sales can’t be regained. As an employee-owned company, everyone at Ciranda is impacted by those lost sales and profits.

Ciranda is a great example of the kind of trade GSP is meant to promote. Its qualification process includes an in-person visit to every supplier. While on-site, it observes each ingredient’s journey from the field to the processing plant. In addition to evaluating product quality, it surveys working conditions, fair labor practices, and the overall environmental health of the project. In 2020, Ciranda published a book highlighting the farmers around the world growing their product.

By eliminating U.S. tariffs on sustainable food ingredients, GSP helps companies like Ciranda do “more good” for workers and the environment in developing countries and the United States. Their example also highlights the risk of imposing too many eligible criteria on GSP countries for which higher tariffs are the only possible punishment. No matter how well-intentioned a new GSP criterion (e.g., on environment) may be, terminating GSP often hurts those meeting or exceeding even the highest standards. That’s why the Coalition believes Congress should consider changes to mitigate any punitive actions as part of GSP renewal, such as supporting partial (instead of full) terminations and/or creating a mechanism for good actors to retain benefits.

Note: Ciranda’s story came from a new Coalition survey on expiration impacts. GSP importers can take the survey here.

“I have had to switch suppliers, as I can no longer afford to do business with Thailand. Most of the new development went to China and a little to Viet Nam. I am still doing some re-orders with Thailand, but as I discontinue products there is nothing more in the pipeline for them.”

Every day that GSP remains expired is a win for producers in China. Congress should renew GSP immediately and update its rules to help American companies shift sourcing from China to GSP countries – not the other way around.

Note: the quote came from a new Coalition survey on expiration impacts. GSP importers can take the survey here.

Due to GSP country terminations of Turkey (May 2019) and India (June 2019) and partial suspensions of Thailand (April 2020, December 2020), American companies have paid about $800 million in extra tariffs. Despite costs to American companies and workers rapidly approaching $1 billion, there has been no progress on any of the issues raised in those country reviews.

With GSP expired for six months, why are we worried about old country reviews? Because the Senate-passed GSP renewal legislation, the House Republican companion bill, and a separate House Democratic bill, all add numerous criteria that could be justified to revoke a country’s GSP status but nothing providing direct help or indirect incentives for countries to comply. If history is a guide, new tariffs on Americans are much more likely than U.S. policy “wins” in GSP countries. Congress should do everything in its power to avoid setting up such lose-lose situations as part of its GSP renewal bill.

Tariff trends make the (lack of) outcomes look even worse. If exporters in India/Turkey/Thailand were suffering, you’d expect to see U.S. tariffs faced falling over time as American companies cut back orders and found alternative sources in other countries. The opposite has happened, with tariffs paid on (previously GSP-eligible) imports from all three countries hitting new highs in April and/or May 2021. While American companies pay $50+ million per month in extra tariffs, the exporters in India, Turkey, and Thailand are thriving. American companies and workers clearly have borne the brunt of GSP terminations.

It’s worth reiterating: there has been no resolution of – or even tangible improvements on – any of the issues raised during the country reviews. There have been no “victories” for American companies or interests, only losses. That includes export losses given that India stopped delaying imposition of Section 232 steel/aluminum retaliatory tariffs immediately after GSP talks collapsed.

This is not to suggest that eligibility criteria can’t or shouldn’t be added. But if policymakers want to create an environment where new criteria are more likely to raise standards – and avoid lose-lose outcomes like these recent cases – Congress should incorporate other changes into GSP renewal legislation to:

• make countries care more about keeping GSP benefits
• help countries make progress on the new criteria
• prevent abuse/misapplication of the new criteria
• minimize collateral damage when actions are necessary