President-elect Trump’s renewed threat to impose steep tariffs on goods from Canada, Mexico, and China has US businesses bracing for impact. The costs of these tariffs, ultimately borne by American firms importing goods from these countries, could be devastating. History, however, suggests a potential path to mitigation: political donations.
A recent academic study analyzing tariff exemption applications during Trump’s first term reveals a strong correlation between Republican Party donations and the likelihood of securing an exemption from these levies. Thousands of companies applied for exemptions from the $550 billion in tariffs imposed on Chinese goods in 2018, with only 14.6% successful. However, the study found that firms making significant donations to Republican campaigns had an approval rate of approximately 18.5%, significantly higher than the roughly 11.2% approval rate for firms with substantial Democratic donations.
This disparity highlights a troubling political distortion in what should be an “arm’s-length” process, according to Veljko Fotak, associate professor at the University at Buffalo and co-author of the report. Jesus Salas, associate professor of finance at Lehigh University and another co-author, described the findings as “shocking” and noted that these exemptions can provide “years of benefits” worth “a lot of money” to recipient companies. The reappointment of Jamieson Greer, who served as chief of staff to US Trade Representative Robert Lighthizer during Trump’s first term, further suggests a continuation of this pattern.
The study examined applications for exemptions totaling $550 billion in tariffs imposed on China in 2018. Of the 7,015 applications, a mere 14.6% were approved. The stark difference in approval rates based on political donations underscores the significant influence of partisan contributions on the exemption process. Grace Lee, associate professor at Fordham University and a co-author of the report, pointed out the disproportionate impact of relatively small donations: even though the average donation was only 0.0025% of a company’s total assets, the potential benefits of exemption were substantial.
While donations to Trump’s first inaugural fund didn’t show a direct impact on exemption approvals, Lee suggests that contributions to his second inaugural committee might influence the outcome this time. Major corporations, including Amazon, OpenAI, and Meta, have already pledged millions to the inaugural fund, raising concerns about the potential for continued political favoritism in the awarding of tariff exemptions. The Biden administration previously criticized this exemption process, but with the return of the previous administration, little has changed, leaving US businesses facing a potentially uneven playing field. A request for comment from Trump’s transition team went unanswered.