The Office of the United States Trade Representative faces a massive backlog of requests from companies seeking a reprieve from the Trump administration's tariffs against China, even as Washington and Beijing try to finalize phase one this year of a deal to end the 18-month-long trade war.
More than 3,000 companies have filed about 44,000 requests for exclusions from the first three rounds of President Donald Trump's tariffs on $250 billion of Chinese imports. The overwhelming majority of these requests, about 28,000, are under review as of Nov. 1. About 4,900 requests have been granted, while about 10,970 have been denied.
And more requests for exclusions are likely to flood the administration in the coming months.
The USTR opened the process this week for companies to file exclusion requests for the president's fourth round of tariffs on $300 billion of Chinese imports, the largest round of duties yet. Unlike past rounds, which largely targeted components and parts, these tariffs hit a wide array of finished consumer goods. Everything from clothing to electronics to musical instruments and more are subject to this latest round of duties.
As of Saturday, companies have already filed 146 exclusion requests from the fourth round of tariffs. Apple, for example, is asking for tariff exclusions for the Apple Watch, iPhone parts and the HomePod among other items.
The deadline to file exclusion requests for the $300 billion of goods covered by list four is Jan. 31, 2020, despite administration optimism about clinching at least the first phase of a broader trade deal with China sometime this year. The exclusion process closed for lists one through three covering $250 billion. For lists one and two, which cover $50 billion of goods, all requests have already either been granted or denied. The pending cases are from list three, which covers $200 billion of Chinese exports.
The Office of the United States Trade Representative could not be immediately reached for comment.
Optimism rose in October when Trump suspended another tariff hike on the $250 billion of Chinese imports after negotiators agreed on the principles of the first part of a trade deal. Treasury Secretary Steven Mnuchin, however, told CNBC days later that tariffs scheduled for Dec. 15, the middle of the holiday shopping season, will likely go into effect if a deal is not reached by then.
Whether or not progress in trade talks continues is an open question. The U.S. and China were reportedly close to a deal in May, but negotiations collapsed after Washington accused Beijing of backtracking on key commitments. The trade war escalated in the ensuing months with Trump slapping tariffs on virtually all Chinese exports to the U.S.
American businesses, many of them small and medium-sized companies, have filed scores of public comments asking the administration to rethink its trade strategy. Other companies have spoken out strongly in favor of more targeted tariffs against China to promote U.S. manufacturing and protect intellectual property.
Wall Street analysts had a lukewarm response to the announcement of the first phase of a deal. Morgan Stanley called the deal "uncertain" and said there's "meaningful risk" that tariff escalation will continue. Goldman Sachs said the December round of tariffs will likely be postponed, but still sees a 60% chance they will go into effect sometime in 2020. Evercore, on the other hand, expects the tariff hike to be delayed and does not foresee any tariff increases next year.
Uncertainty rose this week after Chile canceled the international summit where Trump and Chinese President Xi Jinping where expected to sign phase one of the deal. The South American nation has been gripped by mass protests recently over domestic issues. Trump said Washington and Beijing were looking for a new location for the signing and an announcement would be made soon. Bloomberg reported Thursday that Chinese officials are skeptical a comprehensive deal can be reached with the Trump administration, even as the two sides prepare to sign phase one.
On Friday, China said it reached a consensus in principle with the U.S. after a phone call among trade negotiators this week.
Amid the uncertainty, trade lawyers are encouraging companies to file exclusions for the $300 billion of products covered by list four. Andrew McAllister, an attorney with the international trade group at the firm Holland & Knight, was skeptical when the exclusion process opened for the first two rounds of tariffs, but said companies had a fair amount of success getting their requests granted by the USTR. About 34% of the requests filed for lists one and two, which covered $50 billion of goods, were granted.
Jeremy Page, a trade lawyer with the firm PageFura who has worked with dozens of companies on exclusion requests, said he's found the USTR process has generally been fair.
"The USTR process has been pretty even handed," Page said. "I've been pleasantly surprised. It seems that they're not being knee-jerk. Obviously if there's a national security implication all bets are off."
To receive an exclusion, a company is required to explain whether the particular product is available only in China; whether they've attempted to source the product from the U.S. or a third country; whether the imposition of tariffs will cause "severe economic harm to the requester or U.S. interests; and whether the product is important to Beijing's "Made in China 2025" industrial program.
McAllister said the main challenge companies face is demonstrating that they can only source their product in China. It's also important for companies to file applications that resonate with the administration's "America First" agenda by explaining why their business and their exclusion request is good for the U.S. economy, he said.
"The applications that are well thought out tell a nice story about how it's good for America – how it's promoting U.S. jobs, how it's promoting U.S. economic activity," McAllister said. "We've found the success rate to be higher."
Beyond filing a strong application, McAllister said Holland & Knight also encourages companies to advocate for their case in Washington, whether that's through a trade association, lobby group or contacting their congressional delegation. A call by the right person with the right touch can potentially help move an application up in the pile, he said.
Companies, however, will need to have patience with the exclusion process – or cross their fingers for a trade deal that results in Trump lifting the tariffs against China. The USTR has not provided an official time frame for processing claims, but it normally takes months for an exclusion request to reach a final determination. Even if a company has a strong case, there's no guarantee that an exclusion will be approved.
Both McAllister and Page said they're not optimistic about the Trump administration broadly lifting tariffs this year, despite the push by the U.S. and China to sign the first part of a trade deal.
"We want to make sure people are tempering their enthusiasm," Page said.
— CNBC's Nate Rattner and Nick Wells contributed to this report.