No waivers allowed for US businesses in latest round of Chinese tariffs

Key Points
  • The U.S. Trade Representative is not allowing any exceptions on the latest set of tariffs on $200 billion of imports from China.
  • In previous rounds, businesses were able to make their case for removing some products from the proposed list.
  • Businesses say they are baffled by the decision — and fear it's another sign that trade tensions with China will not subside any time soon.
Retail trade groups call for tariff waivers

American businesses are pleading with the Trump administration to create an escape hatch from the latest round of tariffs on Chinese goods. But this time, the U.S. Trade Representative's office is not allowing any exceptions.

The tariffs cover $200 billion worth of imports and hit a broad list of consumer goods, from clothing to electronics to holiday decorations. Previous rounds included a formal process for companies to request specific products be removed from the list.

Businesses say they are baffled by the decision — and fear it's another sign that trade tensions with China will not subside any time soon.

"The U.S. government is very much incenting a disconnection between the U.S. and the Chinese economies," said Eric Miller, president of consulting firm Rideau Potomac Strategy Group. "If they start handing out large numbers of exemptions, that, in effect, defeats the purpose because it takes the pressure off China."

For many companies, the clock is ticking. The tariffs will jump from 10 percent to 25 percent in January if the two countries cannot reach a resolution. Already, companies are feeling the higher costs seep into supply chains and chip away at margins. In a letter sent to the White House on Wednesday and obtained by CNBC, an influential retail lobbying group protested the "broad application" of tariffs on thousands of common consumer products.

"Razor-thin margins give retailers very little room to absorb the tariffs without passing some cost on to consumers," the letter from the Retail Industry Leaders Association said. "Tariffs must not be an end in and of themselves."

The U.S. Trade Representative's office did not respond to a request for comment.

Capitol Hill is joining corporate America in criticizing the agency's stance. Democratic Rep. Bill Pascrell of New Jersey is preparing a letter to U.S. Trade Rep. Robert Lighthizer highlighting "significant concerns" from the business community — and pressing the administration on whether more tariffs are coming down the pike.

"To ensure that we do not learn about significant U.S.-China trade actions solely through tweets, we also ask that USTR provide clarification on what we should expect in the next tranche of potential tariffs," said the letter, which was shared with CNBC and signed by 27 other House Democrats.

The push comes after Sen. Tim Kaine, D-Va., and nearly a dozen Senate Democrats made a similar request last week. Reps. Jackie Walorski, R-Ind., and Ron Kind, D-Wis., got 169 lawmakers from both parties to sign a letter calling the lack of an exclusion process a "glaring omission."

"We just want to make sure American companies are treated fairly," Walorski told CNBC in an interview. "We just wanted some parameters, some guardrails that help protect these manufacturers and level the playing field without having them having any kind of losses."

In each round of tariffs, the administration published a proposed list of affected goods, and businesses were able to make their case for dropping certain products. The USTR removed thousands of items from the proposed tariff lists following pushback from individual companies and trade groups. Apple watches, flat screen TVs and high chairs all got dropped.

But previous rounds also came with a way for companies to seek relief on specific products after the tariffs were already in place. The USTR stopped accepting requests on the first round on $34 billion in Chinese goods about two weeks ago. Nearly 7,000 petitions have been submitted, according to a search of a government database. So far, it has denied about 670 requests.

The first round of tariffs largely covered intermediate goods, or parts used to make other products. Many of the requests came from niche suppliers and manufacturers that argued the goods were difficult to find — or simply not available — outside of China.

Some big-name companies seeking waivers include Kimberly Clark, which sought relief for stainless steel paper towel holders. Mitsubishi Caterpillar, which makes forklifts, asked for counterweight castings to be removed. The Retail Industry Leaders Association requested exclusions for four items on behalf of its members, which include some of the biggest retailers in the country: water coolers, pool pumps, mini-fridges and ice makers.

Companies have until Dec. 18 to request an exemption from the second round of tariffs on $16 billion in Chinese imports.

"Your objective is to cause as much pain to you adversary as possible and as little to your own economy as possible," said Matt Gold, a professor at Fordham University Law School and former top trade official under President Barack Obama. "You need to hear from your own industries and your own consumers."

However, one watchdog group criticized the exemptions, saying the process allows the government to pick winners and losers in the private sector.

"We do have an interest in the cronyism aspect of trade, said John Vecchione, president of Cause for Action. "They're protecting a domestic industry against the consumer."

A similar program for companies to seek waivers from new tariffs on steel and aluminum came under heavy fire for mismanagement. That process was handled by the Commerce Department, which was overwhelmed by the number of applications.

The agency received more than 47,000 requests, according to a spokesman. It has issued decisions in roughly 16,500 cases. In addition to its own staff, Commerce hired 70 contractors to process all the paperwork and is working to streamline the process, he said.

For now, businesses say their best hope is that Trump's trade war is short-lived.

"Tariffs are not the answer in addressing China's intellectual property practices," said Hun Quach, RILA vice president for international trade. "These tariffs are only going to cause prices to increase on everyday consumer items, …. things that we would like to avoid getting caught in the crosshairs of the tariff war."