Fun, old-fashioned family Christmas lights have faced up to $65 million in extra tariffs due to GSP expiration. Those high costs are the result of a few factors: 1) regular tariffs on Christmas lights are high (8%); 2) U.S. imports of Christmas lights from the world are at an all-time high; and 3) GSP countries have become the dominant suppliers as companies seek alternatives to Chinese suppliers, which face 33% tariffs (8% regular tariff + 25% Section 301 tariff).

If U.S. policymakers want to see shifts out of China, letting GSP expire is a no good, rotten way to show it. As recently as 2017, China accounted for $399 million out of $472 million (84%) of all U.S. Christmas lights. Since GSP expired on December 30, 2020, American companies have imported over $830 million in Christmas lights from GSP countries. That works out to almost $7 in imports from GSP countries for every $1 from China. But because GSP expired, each shipment of twinkling holiday cheer gets hit with an 8% tax. Bah humbug, indeed.

GSP renewal shouldn’t be hard: Congress isn’t developing a non-chloric, silicon-based kitchen lubricant here. In fact, GSP’s support is so broad and bipartisan that no sitting Member of the House of Representatives voted against GSP renewal when it last came up in 2018. And yet GSP expiration is about to enter year 3 and American companies already have paid well over $2 billion in extra tariffs.

If Members of Congress are looking for any last-minute gift ideas for American companies, renewing GSP is a good one. Short of full renewal, passing the bipartisan H.R. 8906 would refund over $2 billion to companies that have been waiting on Congress to do something – anything – that provides GSP tariff.

You can buy a whole lot of above-ground pools or Jelly-of-the-Month club memberships with that kind of holiday bonus.

“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.

Fun, old-fashioned family Christmas lights faced $30+ million in extra tariffs due to GSP expiration. Regular tariffs on Christmas lights are high (8%), and there’s been a huge shift in sourcing from China to GSP countries in the last few years to escape 25% Section 301 tariffs.

In the last 12 months, Christmas lights imports from GSP countries ($395 million) were 6 times higher than from China ($64 million). As shown in the graph, the current sourcing is nearly the opposite of 2017, when China accounted for $399 million out of $472 million (84%) of all U.S. Christmas light imports, compared to just 14% for GSP countries. Yet imports from China dropped precipitously after Section 301 tariffs increased to 25% in May 2019 and GSP countries were to fill the void (aka save the holidays).

Unfortunately, there are no good sourcing options for companies that want to provide affordable strings of Christmas lights (whether 2 or 250 strings). Even though imports from China face 33% tariffs (8% regular + 25% Section 301), American companies have paid considerably more tariffs on imports from GSP countries that should be duty-free than on imports from China and all other countries combined.

It’s not a controversial program: GSP’s support is so broad and bipartisan that no sitting Member of the House of Representatives voted against GSP renewal when it last came up in 2018. And yet GSP expiration is about to enter year 2 and American companies already have paid $1+ billion in extra tariffs.

If any of you [Members of Congress] are looking for any last-minute gift ideas for me, I have one: renew GSP.

“By helping restore GSP for non-sensitive imports, these commonsense changes will further GSP’s development goals, lower costs for American manufacturers and families, and increase the Administration’s leverage as it implements new GSP eligibility criteria,” said Coalition for GSP Executive Director Dan Anthony. “GSP can be a powerful economic development tool, both in GSP countries and at home. The CNL Update Act complements bipartisan efforts to reauthorize GSP in a manner that better promotes a race-to-the-top in trade. We urge Congress to include it any GSP renewal bill.”

CNLs are statutory thresholds that can trigger lost duty-free treatment under GSP even if there is no domestic production or concerns that imports harm U.S. industry. Congress has not updated the CNL thresholds since 1997, and the growth rate for CNLs has declined every year since. Furthermore, while the GSP statute says the benefits “may” be restored if trade levels fall below the CNL thresholds in the future. In recent years, over 95% of affected products were below CNL thresholds, but restoration almost never happens (e.g., less than 10 products since 2007). As a result, product-specific exclusions such as CNLs now eliminate as much as 1/3 of all potential GSP benefits annually (e.g., more trade from Brazil is excluded by these rules than still covered by GSP).

The CNL Update Act would make several changes to CNL rules, including setting a fixed rate for CNL thresholds to grow each year and establishing that the President “should” restore duty-free treatment for products that fall below the CNL thresholds. Changes would not impact products removed from GSP following a country practice review or a petition alleging harm to the domestic industry, which are covered by different sections of the GSP statute. The Administration would retain final discretion in all review decisions.

Additionally, the CNL Update Act includes the Sense of Congress that the Administration should “take all available steps to facilitate continued duty-free treatment for products where the imposition of duties is likely to slow or reverse progress made toward meeting the [various GSP eligibility criteria]…or result in severe economic harm to United States entities, particularly small businesses.” It also says the Administration should create a process to mitigate potential harm, including “exploring the feasibility of preserving duty-free eligibility on a case by case basis for qualifying companies” if punitive action is deemed warranted. Again, the Administration would retain final discretion in all review decisions.

Authorization for the GSP program expired on December 31, 2020, and Congress is considering changes to GSP eligibility criteria and others provisions as part of reauthorization. GSP expiration cost American companies at least $873 million in extra tariffs through October 2021 and costs continue to grow by nearly $3 million per day. In September, over 300 American organizations sent a letter to Congress urging swift GSP renewal, including changes such as those proposed in the CNL Update Act.

“Earlier this year, Ambassador Tai said creating a race-to-the-top in trade would require ‘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,’ added Anthony. “That characterization could apply to many aspects of the GSP program. We thank Representatives Murphy and Walorski for their leadership on this important issue that impacts so many workers and communities around the world.”

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.

Any discussion of improving competitiveness through trade – especially as it relates to diversifying supply chains away from China – must include GSP renewal. China is excluded from GSP, and many GSP countries are natural alternative suppliers to China. By eliminating tariffs on China’s competitors, GSP makes them more viable alternatives to low-cost Chinese producers.

There are no two ways about it: loss of GSP makes Chinese producers more competitive. This is especially true for products where Section 301 tariffs on China may lead U.S. companies to seek alternative suppliers given the near-perfect overlap of products included on the Section 301 lists and GSP-eligible lists. And it’s not just about expiration, the dynamic applies to all types of GSP losses.

For example, while Section 301 tariffs covered just 54% of U.S. imports from China from January-September 2021, during the same time period the products on Section 301 lists accounted for:

• 96% of the estimated $763 million in extra tariffs from GSP expiration
• 97% of the estimated $318 million in extra tariffs from individual GSP product exclusions (e.g., competitive need limitations or “CNLs”)
• 90% of the estimated $312 million in extra tariffs due to lost GSP for India

Imposing an extra $150 million per month in tariffs on China’s competitors is a funny strategy for helping American companies move supply chains out of China. Backpacks are a good example of how that strategy has failed. After GSP benefits were extended to backpacks in 2016, GSP imports steadily gained market share. The Section 301 tariffs supercharged the trend – with gains now directly at the expense of China – but GSP expiration at the end of 2020 stopped both GSP imports’ rise and Chinese imports’ fall.

“GSP” and “China” issues don’t exist in a vacuum and therefore shouldn’t be treated as such. Here’s what should be done:

1. Congress should renew GSP as soon as possible. GSP expiration cost American companies at least $763 million in extra tariffs through September, and they’re likely to top $1 billion in 2021 if not renewed this year.
   
2. As part of renewal, Congress should amend GSP rules (e.g., CNLs) to keep as much trade under the program as possible. The more tariff benefits to GSP countries, the greater the incentives to leave China (and comply with eligibility criteria, as discussed here).
   
3. The Administration should make restoring GSP for countries such as India a priority. In November, 75 House Members sent a letter supporting just that, and a U.S.-India joint statement said the U.S. would consider restored GSP. Talks should move as quickly 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.

From January-September 2021, American companies paid at least $763 million in extra taxes as a result of GSP expiration. 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.

From January-August 2021, American companies paid at least $666 million in extra taxes as a result of GSP expiration. Imports into 36 states (plus Puerto Rico) paid at least $1 million in tariffs from January-July 2021 due to GSP expiration. The map below shows estimated tariffs paid for products claiming GSP by state.

August was the most expensive month of GSP expiration yet both nationally and for 15 states: Alabama, Delaware, Georgia, Hawaii, Idaho, Maryland, Minnesota, Montana, New York, North Carolina, Oklahoma, Pennsylvania, South Carolina, Texas, and Washington. Tariffs paid on imports into Minnesota were 84% higher than any previous month. For Pennsylvania and Georgia, tariffs paid were 53% and 27% higher than any previous month, respectively.

GSP expiration costs have a direct, negative impact on American workers:

• “GSP can be the difference between making a profit or a loss and without profits we obviously can’t increase wages and benefits” says Charlie Smith of BROSCO, a 4th generation, family-owned millwork distributor in Massachusetts and Maine. “Continued losses put all of our 360 workers’ jobs and livelihoods at risk.”
  
• “We are having challenges staying competitive“ says Ajay Kochhar of A&S Distributors in Salida, California. The 7-worker company has paid over $60,000 in extra taxes on food products from Fiji because of GSP expiration. “We can’t hire and give employees full benefits as this is a major increase.”
  
• “The tariffs when added to the rapidly escalating costs of containers have been devastating” says Sandra Colyer of Lily Koo LLC in Jamestown, North Carolina. “Employees laid off due to Covid are slowly being brought back, but return to work would occur more quickly if money was not being spent on tariffs.”

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.

From January-July 2021, American companies paid at least $565 million in extra taxes as a result of GSP expiration. Imports into 36 states (plus Puerto Rico) paid at least $1 million in tariffs from January-July 2021 due to GSP expiration. The map below shows estimated tariffs paid for products claiming GSP by state.

July was the most expensive month of GSP expiration yet for 12 states: Georgia, Hawaii, Iowa, Kansas, New Hampshire, Rhode Island, South Carolina, Utah, Vermont, Virginia, Washington, and Wisconsin. In Rhode Island, tariffs costs in July were more than the previously three months combined. Tantalum metals used primarily to manufacture electronic components from Kazakhstan and Christmas lights from Cambodia – the two products driving the Rhode Island increase – show the diverse impacts of GSP expiration.

GSP expiration costs have a direct, negative impact on American workers:

• “GSP can be the difference between making a profit or a loss and without profits we obviously can’t increase wages and benefits” says Charlie Smith of BROSCO, a 4th generation, family-owned millwork distributor in Massachusetts and Maine. “Continued losses put all of our 360 workers’ jobs and livelihoods at risk.”
  
• “We are having challenges staying competitive“ says Ajay Kochhar of A&S Distributors in Salida, California. The 7-worker company has paid over $60,000 in extra taxes on food products from Fiji because of GSP expiration. “We can’t hire and give employees full benefits as this is a major increase.”
  
• “The tariffs when added to the rapidly escalating costs of containers have been devastating” says Sandra Colyer of Lily Koo LLC in Jamestown, North Carolina. “Employees laid off due to Covid are slowly being brought back, but return to work would occur more quickly if money was not being spent on tariffs.”

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.