In the first five months of expiration, American companies paid at least $397 million in extra taxes as a result of GSP expiration. Companies in 32 states paid at least $1 million in tariffs from January-May 2021 due to GSP expiration. The map below shows estimated tariffs for products claiming GSP paid by state in that period.

May was the most expensive month of GSP expiration yet both nationally and for 19 states: Alabama, Colorado, Delaware, Georgia, Hawaii, Illinois, Kansas, Massachusetts, Minnesota, Mississippi, Missouri, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Pennsylvania, South Carolina, and Virginia. In three states – Colorado, Kansas, and New Mexico – tariffs paid in May were at least double any of the previous four months.

While many believe the United States has low tariffs, Colorado companies have paid extra tariffs averaging 11.7% due to GSP expiration. Companies in Maine, Montana, New Hampshire, Utah, and Wisconsin have all paid extra tariffs average 7-10%.

The data on tariffs paid is a conservative estimate, and the real figure likely is higher. Why? Estimates only capture products that continued to claim GSP despite expiration. Yet imports of many products that traditionally get GSP have not claimed it in 2021. Tariffs paid on those imports still would be eligible for refunds in the event of a retroactive renewal, but importers would need to file manual requests.

It is critical that Congress renew GSP – with refunds for tariffs paid – as soon as possible. Companies that want to help the Coalition for GSP educate policymakers on who is hurt by expiration (and how) should:

• join the Coalition for GSP
• add their name to the free GSP supporter list
• answer our very short survey on GSP expiration impacts to date

Tai: I hear you. But I think that is the way the global economy needs to evolve. We need to build in incentives. And when we talk about incentives, we’re talking about carrots and sticks. So in some ways, what we need to do is figure out how we need to re-devise those carrots, maybe the shape of the carrots, when they’re applied. We need to look at the sticks in terms of how to enforce. We also want to be taking a look at rules that were devised when our world, frankly, looked and operated differently, and maybe think about where those rules need to be tightened or loosened.

Though the question was not about GSP, it is hard to think of a policy for which the answer is more timely:

• Congress created the GSP program to promote development nearly 50 years ago, in a very different world, and many of its key features have not changed in decades (if ever)
• GSP expired on December 31, and Congress is considering possible changes to the program as part of any renewal legislation
• New eligibility criteria (i.e., “sticks”) that countries must meet to retain GSP have been proposed, but there have been limited discussions on how to “re-devise those carrots, maybe the shape of the carrots” to incentivize compliance with new obligations

So what are the old rules and possible new or re-devised carrots in the GSP context? We examine several decades-old rules that reduce GSP’s effectiveness as a development and policy tool, and suggest a few minor changes that could have a large, positive impact on GSP in the 2020s and beyond.

The elephant in the room: apparel and footwear

Sadly, Members of Congress believe expanding GSP product coverage to include apparel and footwear, which have been statutorily excluded since its creation, is too controversial. But facts are facts and here they are: in 2020, the United States imported $14.8 billion in apparel and footwear from GSP countries that were subject to duties and ineligible for GSP. Excluding oil, that was more than twice as much as the $7 billion in imports subject to duties/ineligible for GSP of all other products combined. Amazingly that understates the impact, as apparel and footwear accounted for $2.4 billion of the $2.8 billion (85%) in tariffs faced for products wholly excluded from the GSP eligibility list.

While the exclusion perhaps made sense in the beginning, we’ve heard domestic production accounted for about half of U.S. apparel and footwear sales in 1974, today over 98% of U.S. clothes and shoes are imported. Given they were excluded from the start, GSP of course had nothing to do with the shift, but program coverage is still hamstrung by “rules that were devised when our world, frankly, looked and operated differently.”

The not-quite-elephant in the room: competitive need limitations (or CNLs)

Most people that follow GSP know of CNLs, but few now that CNLs eliminated as much as 1/3 of all potential GSP benefits in 2020! Here are the numbers: in 2020, imports claiming GSP totaled about $16 billion. By comparison, the value of imports on the nominal GSP list but excluded for an individual country was $8 billion. (This figure does not include imports of products removed as part of a country practice review, since they are covered by separate rules.)

How did we get here? Again, it starts with “rules that were devised when our world, frankly, looked and operated differently.” CNL rules have existed from the beginning, but the last major update was in 1996, at which time:

• China wasn’t in the WTO yet and imports from China were 55% lower than imports from Japan
• Malaysia was the top GSP import source
• 13 current U.S. FTA partners were part of the GSP program
• 13 current EU members were part of the GSP
• 21 of the top 32 import sources under GSP are no longer beneficiaries

In short, the GSP program, U.S. trade policy, and global trade patterns were all very different.

How rule designs themselves were problematic: for calendar year 1996, CNLs were set at $75 million or 50% of U.S. imports from the world. The GSP statute set the de minimis level – under which the President may disregard the 50% threshold – at $13 million in imports from the world (not the GSP country). The regular CNL increases by $5 million annually and the de minimis increases by $500,000 annually.

And there’s the catch: by setting a value change instead of a rate, the real annual increase has fallen significantly over time. For example, the CNL change from $75 million in 1996 to $80 million in 1997 was a 6.7% increase, but 25 years later the increase from $195 million in 2020 to $200 million in 2021 is just a 2.6% increase. The value of CNL increases diminishes with each passing year that Congress does not update the 1996 rules.

There also were two premises that turned out to be false: 1) that once products reached CNL levels they could sustain trade without GSP benefits; and 2) if trade did shift, it would go to lesser developed GSP countries and lead therefore promote further growth in GSP countries. Empirical research in 2011 by Dr. Shushanik Hakobyan (then at the University of Virginia, now at the International Monetary Fund) found that the opposite was true:

• “By the third year of exclusion, imports from affected countries decrease by more than 70 percent relative to the pre-exclusion average…These findings imply that CNLs may not be targeting the “super competitive” exporters, rather these country-product pairs may need the preferential treatment to access the US market.”
• “By the third year of exclusion, the share of other GSP eligible countries increases by 8 percentage points, whereas that of non-GSP countries expands by 22 percentage points…CNLs seem to provide a competitive edge to non-GSP countries in capturing the US market.”

We’re unaware of any more recent academic research on CNL impacts, but the fact that approximately 95% of products excluded in the past were below the CNL (or de minimis) thresholds in 2020 strongly suggests that post-GSP loss import declines continue – and exports rarely recover.

Congress’ self-correction mechanism also has failed: the GSP statute explicitly allows products that fall below CNL thresholds after losing GSP to be reinstated. The statute does not even appear to require a formal review! Yet in practice, it almost never happens, even when stakeholders attempt to navigate the GSP Annual Review process.

Case in point: wind turbine parts from Brazil

This seems like a good example, since the preceding question to Ambassador Tai’s response asked how to align trade and environmental policy “in a global trade environment where all the incentives are cheaper, faster and not necessarily environmentally friendly.” The wind turbine parts lost GSP on July 1, 2006 based on 2005 imports of $143 million (CNL threshold: $120 million). Imports from Brazil continued to grow in 2006 and 2007, then collapsed just as Dr. Hakobyan’s research showed was the norm:

• From 2007 to 2008, U.S. imports from Brazil fell from $305 million to $65 million (-79%) and the share of U.S. imports from Brazil fell to 4.8%
• From 2008 to 2009, U.S. imports from Brazil fell from $64 million to $27 million (-58% more) and the share of U.S. imports from Brazil fell to 2.8%
• In 2008, China became the top supplier, nearly tripling its import value (from $80 million to $230 million) and more than doubling its import share (from 8% to 17%) since the last full year of GSP benefits for Brazil in 2005
• China remained the #1 supplier for wind turbine parts every year except one between 2008 and 2019, accounting for 35% of U.S. imports in 2017 before Section 301 tariffs were imposed it 2018

Shouldn’t someone have petitioned for restored GSP based on the clear statutory authority to restore GSP for products that fall below the CNL threshold? GE Energy did. Twice. As part of both the 2009 and 2010 GSP Annual Reviews.

Shouldn’t they have noted the import collapse and how non-GSP countries were benefiting? Of course, and they did in their 2009 petition: “In 2008, Brazil’s exports of HTS 8503.00.95 declined by 78.7% by value while at the same time, the developed nations of China, Japan, the United Kingdom and France increased exports by 49%, 24%, 25% and 37% respectively, by value.” And again in their 2010 petition: “Of the eight other countries supplying more product to the U.S. market none are BDC’s.“

Shouldn’t they have argued that restored GSP would promote President Obama’s goal to increase U.S. wind energy production? Yup, and the did that too!

But both petitions were denied. And no one has petitioned since despite the fact the GSP imports from Brazil have never gotten close to CNL thresholds in subsequent years. Fool me once and what not. On several levels, GE Energy is far from alone:

• It appears that fewer than 10 product redesignations were granted between 2007 and 2020, of which 4 were never formally requested (e.g., 3 products for Ukraine were restored after Russia invaded Crimea)
• Stakeholders petitioned to restore GSP for 22 products as part of the 2020 GSP Annual Review, and USTR denied all of them without review (i.e., requests were denied on the front end as opposed to on the merits following hearings, testimony, etc.)
• We know multiple companies in multiple sectors importing from multiple countries that filed multiple petitions, all rejected, and eventually just gave up.

In summary, 25-year old rules based on flawed premises and longstanding norms not to use the authority granted by statute now eliminate 1/3 of GSP benefits annually.

GSP priorities for the 2020s and beyond

It seems clear that anyone creating the GSP program from scratch in 2021 would design a very different program than the one that exists today, which represents a mix of primarily 1970s and 1990s trade priorities. GSP has eligibility criteria that prohibit countries “dominated or controlled by international communism” or that participate in cartels blocking exports to the United States (e.g., OPEC), but no criteria related the environment.

The key question: beyond “development” in a broad sense, what goals do U.S. policymakers hope to achieve through the GSP program today? Three broad themes that were/are priorities for Congress and both the Trump and Biden administrations:

1. Using the eligibility criteria as leverage in negotiations with GSP countries (though priority areas differ depending on the policymaker)
2. Encouraging U.S. companies to source less from China
3. Providing tariff relief and promoting job growth for constituents and other U.S. companies

Ignoring that elephant (wearing imported clothes and shoes), the current GSP rules regarding CNLs and norms regarding redesignation undermine all of these priorities.

As it relates to leverage in bilateral talks, it doesn’t matter if the goal is better market access or improved labor laws or stricter enforcement of environmental treaties – each and every stakeholder in beneficiary countries that cares about retaining GSP benefits strengthens the the United States’ negotiating hand. By eliminating GSP for both a large share of stakeholders, and in many case the biggest and most successful stakeholders in a country, CNLs weaken the United States’ hand in bilateral negotiations significantly. That makes it considerably less likely that GSP countries will undertake major reforms to maintain GSP, no matter how much policymakers think they should.

As it relates to encouraging U.S. companies to source less from China, the CNLs affect appears self-evident: companies will not shift sourcing from China to GSP countries if rising imports trigger CNLs and lead to higher tariffs. This is not a new argument against CNLs, only the most timely. Back in the mid-2000s, a joint submission from Carnegie Endowment for International Peace, German Marshall Fund, Oxfam America, and the Women’s Edge Coalition recommended eliminating CNLs that create “a glass ceiling.” From a purely development perspective, they argued CNLs have the unintended effect of chilling investment because “Investors appear reluctant to invest in certain sectors in marginal countries because they believe that as soon as their investment succeeds, they will no longer receive the preference.” That China is the country that companies are moving from – as opposed to flocking to – makes the argument no less relevant than when raised 15 years ago.

As it relates to tariff relief for constituents, the affect once again are clear: U.S. companies paid as much as $340 million in tariffs in 2020 for individually excluded products. Cumulatively over the years, it is billions of dollars in tariffs paid – after the sharp declines in imports that typically accompany GSP loss – and generally for products that do not even meet the current statutory definition of “competitive.”

Taking it back to the beginning, it’s hard to see how any of these outcomes – fewer incentives to meet eligibility criteria, extra incentives to go to/stay in China, or higher U.S. tariffs/lower U.S. imports – help workers in developing countries or further GSP’s original development goal.

Re-devising those carrots (or at least the shape of the carrots)

Development NGOs argued for eliminating CNLs altogether, and it would be the cleanest mechanism to eliminate issues that have arisen over the years due to them. But a few minor changes could make a big difference.

Reset the benchmarks: if the regular CNL threshold grew at the same annual rate as it in the beginning, the limit would have been a little more than $350 million in 2020. Maintaining the original CNL-to-de minimis ratio would put that in the $50-$60 million range. Those seems like good ballpark figures, then CNLs should be set to increase by a growth rate as opposed to set value Congress doesn’t have to worry about diminished benefits again. Increasing that threshold also provides a lot more room to run for companies and sectors seeking alternatives to China.

Make reinstated GSP for products below CNLs the norm: what does keeping non-competitive products out of GSP forever achieve? It hurts development, hurts the U.S. companies that import the product, and reduces the Administration’s leverage in bilateral negotiations. Importantly, CNLs do not protect domestic producers. Any U.S. company or industry that feels it is being harmed can request GSP removal of a given product regardless of import levels. Simply changing the GSP statute to say the President “should” restore GSP, instead of “may,” would provide clear congressional intent while retaining Administrations’ discretion in potentially sensitive reviews.

Make reinstated GSP for products above CNLs an option: the current statute prohibits reinstated GSP if imports from a country exceeded the CNLs in the prior year. There is an exemption to the 50% rule for products not made in the United States, but no possible exemption to the value threshold even for products that aren’t made domestically. Changing the GSP statute to say the President “may” restore GSP would give the Administration new tools to promote development and increase negotiating leverage for truly non-sensitive but high value products. If past history is any indication, statutory authority saying products “may” be redesignated is likely to be used sparingly.

Base CNL calculations only on products claiming GSP: products have lost GSP even though the value of imports claiming GSP was well below CNL thresholds. This generally happens when imports that can’t meet the rule of origin increase, but the result is punishing companies with significant local content (as intended) while having no impact on the companies only doing final assembly (that rules of origin are meant to discourage). It may be more likely to happen if companies shift production from China but need imported parts for several years as operations get up and running. The GSP statute’s “super-CNL” bases its calculations on GSP-claiming imports, and Congress could adopt that language for all CNLs.

Such changes are far from radical. All sticks and no carrots, as Congress appears to discussing, likely will continue to whittle away at the benefits provided by GSP product by product, country by country. But there’s a better way and a few small tweaks would greatly improve GSP’s effectiveness as a development tool, a leverage point, and an alternative to China in the years and decades to come.

Burris Company, a manufacturer in Greeley, Colorado, has paid nearly $400,000 in tariffs due to GSP expiration. Vice President of Finance Mike Kinnison reports: “Burris Company manufactures as well as imports. The lower cost of imports helps to sustain our manufacturing and keep overall costs low. Additional tariffs puts US manufacturing at risk. Much more delay will result in canceling any large capital investments and lead to layoffs.”

Franklin Mfg Inc. in Jericho, New York has paid about $25,000 in tariffs due to GSP expiration. It raised prices to reflect tariffs, which led to lost sales and lower planned purchases going forward. As Franklin Mfg President and Owner Jesse Taube reports: “We are in a vulnerable position to lose our current customers due to not being as competitive.”

Fusion Gourmet, a food importer in Rancho Dominguez, California that has paid $25,000 in tariffs, similarly raised prices and lost sales. According to Fusion Gourmet President Steve Liaw, job impacts are felt by workers in both the United States and Indonesia, it’s primary GSP source country.

• In the United States: “Due to increased costs related to GSP, we are not able to increase our hiring for 2021. These additional costs directly impact our budget that we allocate towards seasonal hiring.”
• In Indonesia: “We will also reduce our orders from factories that are in countries impacted by GSP. This lost revenue will negatively impact these factories which are usually 70+% women workers.”

A Simpler Time, which is based in Morrisville, North Carolina and also operates a retail store in New Orleans, Louisiana, reports how GSP expiration directly hurt wages for its American workers. According to A Simpler Time President Jeff King: “Normally [we] pay quarterly bonuses to employees, but have delayed them as we can’t pass all the increased costs on to customers.” It also didn’t replace a worker that left and reduced another’s hours due to a combination of higher import costs, supply chain issues, and retail sales that remain well below pre-Covid levels.

If you’re a company impacted by GSP expiration, please answer our very short survey on GSP expiration impacts to date (the source for all of the above examples). To further help the Coalition for GSP educate policymakers on who is hurt by expiration (and how), companies are strongly encouraged to:

• write their lawmakers about GSP renewal with our Contact Congress tool
• join the Coalition for GSP
• add their name to the free GSP supporter list

For September/October, GSP imports of Christmas lights increased by $24 million compared to the previous year, while imports from China declined by $32 million. Similarly, the share of total U.S. Christmas light imports claiming GSP more than doubled to 19% in September/October 2018 from 9% during the same period in 2017.

Sourcing from GSP countries saved companies (and likely their customers) millions of dollars since they are not subject to either the 10% Section 301 tariff or the 8% MFN tariff that China already faced. Christmas lights make for a good example for a few reasons:

1. Seasonal imports are concentrated from August-October, therefore shifts will have happened already (or may not be necessary until August 2019).
2. Nearly all imports come from China (85% in 2017) or enter under GSP (12% in 2017), so there are few alternative sources to muddy trend analysis.

So what does a more detailed look at the data show? Imports under GSP jumped significantly – nearly double 2017 figures – in September and October:

And imports from China have dropped since tariffs were imposed:

Most interesting may be viewing the year-over-changes on the same graph:

Imports from China and under GSP were mostly unchanged in the first six months, and both rose in July and August as might be expected. But their paths diverged in September.

The $13 million increase in imports under GSP offset most of the $23 million decline in imports from China. In October, the $11 million increase in GSP imports more than offset the decline from China. That means for the two months combined, GSP increases offset about 75% of the decline in imports from China. (Overall tariffs on Christmas lights rose – A LOT – but GSP likely mitigated the increase by several million dollars.)

If you import from both GSP countries and China, or your GSP imports compete with those from China, please answer our new survey. We hope to collect information that could be relevant as the Administration reviews GSP-eligibility for major supplier countries such as India, Indonesia, Thailand, and Turkey.

The map below shows the overall value of GSP imports (in blue) and tax costs due to expiration (in red) by state during the first two months of 2018. These figures reflect imports that claimed GSP (as advised by CBP) and should be eligible for automatic refunds.

While GSP has been renewed through 2020, we encourage GSP program users to sign up for the free GSP Supporter List to receive periodic updates on such issues such as refunds and the Annual Review process.

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

GSP saved Pennsylvania companies $2.8 million in July, up over $1.1 million (63 percent) compared to one year earlier. Chromium from Kazakhstan, candy from Thailand, and pesticides from India contributed most to Pennsylvania’s GSP increases.

GSP saved Iowa companies $715,000 in July, up over $283,000 (65 percent) compared to one year earlier. Pesticides from India, gelatin from Brazil, and rubber piping from Turkey contributed most to Iowa’s GSP increases.

In addition to Pennsylvania and Iowa, companies in 21 other states saw GSP savings increase by at least 20 percent, including: Alabama, California, Connecticut, Delaware, Florida, Georgia, Indiana, Maine, Massachusetts, Minnesota, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, Oklahoma, Texas, Virginia, and Wyoming.

Savings on GSP imports from Sri Lanka increased by 51 percent compared to July of last year. Ohio companies’ purchases of activated carbon accounted for nearly $1.4 million GSP imports from Sri Lanka. GSP eliminated about $548,000 in import taxes on packaging plastics in July, with approximately a quarter of those savings coming from imports into South Carolina.

*** REMINDER: GSP EXPIRES IN JUST A FEW MONTHS.***

Please use our Contact Congress page to write your Members today about the need to renew GSP today. That page makes it quick and easy to email both Senators and your Representative. All you need to do is: 1) enter your contact info, 2) enter a few sentences about your company/GSP imports, and 3) click send.

GSP expiration in 2013 had a snowball effect familiar to many small business users of the program: raising prices to cover the new tariffs led to lower sales. Lower sales resulted in less money available to purchase new inventory, which in turn led to even lower sales. Eventually, Aid Through Trade was forced to freeze hiring and delay necessary equipment updates.

All for what many might consider to be modest tariffs of $30,000 extra over two years. Yet seemingly modest amounts can make a huge difference for small businesses like Aid Through Trade.

With GSP back in place, Aid Through Trade was able to hire a new worker in Maryland and give thousands of dollars in bonuses to its staff. It also invested in new technologies as sales have returned to pre-2013 levels.

Like many GSP program users, Aid Through Trade is both importer and exporter. (About 45% of GSP Supporter List companies export.) Aid Through Trade exports products that enter duty-free under GSP to Europe.

“Job creation is a top priority for the Trump administration. As we kick off World Trade Week, it is a pleasure to honor these companies who increase our domestic exports and create good paying jobs for the American people.”

The recognition is well-deserved. The organizations show the benefits of engaging in the global economy as opposed to shrinking from it. Yet this is World Trade Week – not just World Export Week – and imports support millions of American jobs too. So we propose the creation of a President’s “I” Award to honor companies whose imports create good paying, American jobs.

Who should be honored with an inaugural President’s “I” Award? We humbly submit the following companies using the GSP program for consideration:

• MS International in Orange, California: The family-owned business doubled its domestic capex and created 280 new jobs (+30%) between August 2015 and December 2016. Like the GSP benefits, the hiring spree has continued in 2017.

• Xpres LLC in Winston-Salem, North Carolina: When import tariffs went up, this small business had to delay key investments and rely upon temporary workers. Since GSP was renewed and tariffs reduced, it has hired 17 full-time employees (+64%) and started providing employees with new benefits.

• Thompson Traders in Greensboro, North Carolina: After seven years of hard work to “break even” in 2013, this start-up had to lay off 8 of 20 employees because GSP expired and tariffs went up. With GSP back in place, it has hired 13 new workers (+108%) and initiated a program to try to manufacture in the United States.

• Univeral Arquati in Santa Clarita, California: The small business froze hiring and investments when U.S. tariffs increased and its products became lost competitiveness to similar Chinese imports. With GSP renewed, it has created 12 new jobs (+19%) and made additional investments to increase future growth opportunities.

• Kona Bicycle in Ferndale, Washington: The small business put development of new models – and their associated jobs – on hold when U.S. tariffs on its imports increased. Since duty-free benefits resumed, Kona has hired 9 new workers (+33%): 5 in product development and sales (reported at the link) and 4 more at a new showroom in Bellingham, Washington (not reported previously).

• PolySource LLC in Independence, Missouri: A supplier of thermoplastic resins and compounds to American manufacturers of global consumer goods (e.g., autos, aerospace products), the small business delayed 2 new hires as a result of new tariffs. PolySource created 5 new jobs (+45%) in the year after GSP renewal eliminated tariffs.

• B&C Technologies in Panama City Beach, Florida: The small business is in its fifth facility – each bigger than the last – in the last 14 years. Yet GSP expiration prevented it from completing required renovations. Since GSP renewal, B&C has hired 3 new workers (+11%) and hopes to hire at least 5 more soon.

If your company has a similar story, leave it in the comment section below or contact Dan Anthony from the Coalition for GSP.

After 7 years of trials and tribulations, the start-up company reached break-even in 2013 and had grown to 20 employees. Then Congress allowed GSP to expire. As Thompson Traders’ President Fred Starr reported in January 2015:

“Due to our financial position and our inability to pass this charge onto our customers, we had to slow down growth, including hiring. We would be a different company today without this totally unanticipated tariff. We’ve reduced our payroll by eight people, a 40% reduction and will not be adding people, until we have a better government environment, including the renewing of GSP.”

Ultimately, Thompson Traders paid $220,000 in higher taxes during the two-year GSP expiration.

With GSP reinstated and tariffs refunded, the company reinvested all of the refunds back into the business. The company initiated a major new product line in a new market in 2015. Thompson Traders rolled out stocking programs with three of its biggest customers and initiated a program to try to manufacture in the United States.

Today, Thompson Traders has 25 employees – more than before GSP expired in 2013 (and double the 12-employee low hit during GSP expiration). Growing sales meant that GSP saved the company nearly as much ($180,000) in the first year of renewal and it did in the two years of expiration ($220,000).

Our Thompson Traders profile page has more details about the importance of continued GSP benefits to the company (also available as a one-page PDF here or below).

Thompson Traders is just one of the GSP importers sharing how GSP allows its businesses and workers to thrive on our Company Profiles page.

Yesterday, we demonstrated why a focus on bilateral trade deficits will provide misguided (at best) or counterproductive and harmful (at worst) lessons to policymakers. In short, companies contribute to bilateral trade deficits with some countries and bilateral surpluses with other – but a report on bilateral deficits will almost never capture those surpluses. It’s even more complex than that – anyone who says the global trade is simple is tricking you or themselves – and today we’ll use the example of Xpres LLC in Winston-Salem, North Carolina (who we wrote about a few weeks back).

To recap our original post: Xpres imports blank ceramic mugs (e.g., coffee mugs) from Thailand under GSP. Mugs are then customized at its North Carolina headquarters and sold throughout the United States and exported to the United Kingdom. Xpres competes primarily against finished mugs (i.e., they require no further customization) imported from China. Refunds and lower tariffs associated with GSP renewal in 2015 have allowed Xpres to invest in its N.C. facility and hire 17 new workers – or about 60 percent employment growth – over the course of a year and a half.

Back to the misguided focus on bilateral trade deficits: what if the United States decided it must cut the trade deficit with Thailand? Furthermore, what if it decided that banning coffee mug imports was the best policy to achieve that goal? What sort of unintended consequences might play out and would anyone be happy with the results?

Banning coffee mug imports from Thailand presumably would shrink the bilateral deficit, but at what cost? It would likely increase the trade deficit with China as more finished mugs are imported instead, and shrink the trade surplus with the UK as Xpres no longer has products to export there. Much more importantly, such a policy would pose real risks to the North Carolina jobs that depend on customizing and selling those Thai mugs.

In a vacuum, it’s easy to see how policies to shrink bilateral trade deficits could be viewed positively. Yet even successful efforts to reduce bilateral deficits may have no effect on overall trade balances. And as the Xpres example clearly shows, pursuing such policies puts American jobs at risk.