The Politics of Tariff Exclusion

• In Event: Politics of the U.S.-China Trade War

Abstract

Since July 2018, the world’s two largest economies—the U.S. and China—have engaged in a tit-for-tat trade war, which has imposed extra tariffs on hundreds of billions of dollars’ worth of goods. The tariffs imposed by both countries are unprecedented and their economic impact is widespread. To mitigate this impact, the Office of United States Trade Representative (USTR) has launched a process of tariff exclusion, in which businesses submit requests to have certain goods excluded from the imposed tariffs. In this article, we seek to understand which firms are more likely to be exempted and why. We argue that decisions to grant exemptions are likely driven by two factors: (1) firms’ political influence and their strategies, and (2) politicians’ considerations to minimize consequent electoral impact in their constituencies. To evaluate our argument empirically, we collected all requests and comments that firms submitted to the USTR. We coded the various reasons that firms used to justify their exclusion requests. After supplementing this data with firm-level covariates, we find that firms that have stronger connections with congressional representatives are more likely to be granted exclusions. Further, firms’ justifications that tariffs lead to job losses and harm global supply chains are more successful in receiving exclusions. Yet, claims that tariffs generate consumer losses and negative social and environmental consequences do not correlate with the likelihood of granted exemptions. We also find that firms located in Republican districts are more likely to be granted exemptions. Our study sheds light on the domestic politics of trade war.

Authors

• Aubrey Waddick, Pennsylvania State University

• Boliang Zhu, Pennsylvania State University

• Angel Manuel Villegas Cruz, Pennsylvania State University