(Bloomberg) --
Public companies whose executives donated to Republican candidates had a higher chance of winning exclusions from President-elect Donald Trump’s first-term tariffs on China, while those that gave to Democrats saw their odds fall, according to a study into thousands of applications for relief.
Companies filed more than 50,000 applications for exemptions after Trump began announcing duties on imports from China in 2018 with the process requiring them to file separate requests for each individual product for review by officials at the Office of the US Trade Representative.
The research was led by Veljko Fotak, a finance professor at the University of Buffalo School of Management. He and three co-authors pored through government records, campaign finance reports and corporate filings to study the more than 7,000 temporary tariff exclusion applications filed by public companies. And when they zeroed in on the 1,022 applications that succeeded, they found that companies which donated to Republican candidates had higher odds of winning exemptions.
Overall, public companies applying for exemptions from Trump’s first China tariffs had a 14.6% rate of success, the researchers found. But just $35,000 in donations to Republican candidates by a company’s political action committee and executives boosted those odds by 3.9 percentage points, Fotak said. That effectively improved the odds of winning an exclusion from roughly one in seven to one in five.
Success delivered a meaningful return. Altogether it meant an extra $57 billion in market capitalization for the firms that succeeded, the researchers calculated for the study, which was peer-reviewed and is due to be published in a forthcoming issue of The Journal of Financial and Quantitative Analysis.
According to the research, donations to Democrats hurt the chances of firms applying for exemptions during the Trump administration. A contribution of just $4,000 reduced the likelihood of success by 3.4 percentage points, Fotak said. That worsened the odds of success down to just under one in 10.
The study does not identify individual companies. It also does not allege any wrongdoing by either companies or US officials.
‘Utterly False’
Stephen Vaughn, who oversaw the exclusion process as USTR’s general counsel during the Trump administration, said any suggestion of partisan bias in the process was “utterly false” and that it was designed to be apolitical.
“Requests for exclusions were reviewed by career staff, and temporary exclusions were granted only in those limited situations where they would benefit the US economy as a whole,” he said. “The non-partisan validity of these exclusions is shown by the fact that in March 2022, most of the exclusions that were set to expire were reinstated or extended by the Biden administration.”
The research paper, a draft of which was released online in July, has added relevance as Trump prepares to return to the White House in January pledging to impose tariffs of 60% and possibly more on imports from China. Still unclear is just how he will deliver that campaign promise, and whether or not there will be an exclusion process.
“There’s a lot of uncertainties but the more I keep on seeing what’s happening with the new administration the more I think it’s going to be more of the same,” said Jesus Salas, a Lehigh University finance professor who collaborated with Fotak on the research.
Lobbyist Ties
Fotak, Salas and their co-authors also looked at the role of lobbyists and particularly those lobbying firms that included former Trump administration officials. Hiring connected lobbyists helped, they found. So did donating to senators assigned to influential panels like the Senate Finance Committee.
The Biden administration maintained the tariffs on Chinese imports and in October announced a similar exclusion process for new tariffs on Chinese electrical vehicles and other products it announced earlier this year. As of Wednesday, though, only 59 applications had been filed by companies and no decisions have been made, which makes it hard to examine any outcomes, Fotak said.
There have been plenty of critics of the previous tariff exclusion process during the Trump administration, which drew complaints that it was slow and unpredictable.
When Trump first imposed tariffs on Chinese imports, large companies in the US and small farmers alike were caught off guard and forced to navigate a new bureaucratic process. The criteria for exclusions were broad and included whether or not products were available in another country or were produced by an industrial sector prioritized for development by the Chinese leadership’s Made in China 2025 program.
Trump’s next round of tariffs, however, will encounter a well-oiled lobbying and legal machine in Washington that has plenty of practice with the tariff exclusion process.
“This time the lobbyists are ready,” Fotak said.
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