In 2018, Bobby Djavaheri, the head of Yedi Houseware Appliances, was deeply concerned about the potential impact of the Trump administration's tariffs on Chinese-made air fryers on his family's appliance business. Faced with a 25% tariff on these imports, Djavaheri sought legal counsel and pursued a tariff exemption from the United States Trade Representative (USTR). Unfortunately, his request, like many others, was quickly turned down without any explanation.

This led to layoffs at his Los Angeles-based company and the cancellation of expansion plans. Djavaheri's experience reflects the broader challenges faced by numerous U.S. businesses in mitigating the financial burden of tariffs imposed on Chinese goods, highlighting the frustrations with a tariff exemption process that is often seen as opaque and disorganized.

Tom Madrecki, Vice President of Campaigns and Special Projects at the Consumer Brands Association, which represents major packaged goods companies including Coca-Cola and General Mills, criticized the exemption process as "broken, convoluted, and incredibly confusing."

As President-elect Donald Trump promised to implement even more substantial tariffs on China, the future of these tariffs and the possibility for businesses to seek exclusions remain uncertain. However, it is evident that the USTR's tariff exemption process during Trump's first term has raised significant apprehensions within the corporate sector. There are concerns that the USTR is selectively favoring certain businesses, with some companies alleging a lack of transparency that could lead to political bias, a suspicion that is supported by scholarly research.

Brian Hughes, a spokesman for the Trump-Vance transition team, stated that Trump would "implement economic and trade policies to make life affordable and more prosperous for our nation." He emphasized Trump's commitment to tariff policies that protect American manufacturers and workers from unfair foreign practices. However, details on the tariff exemption process under the new administration were not provided.

In 2018, the USTR initiated a tariff exemption process, allowing businesses to apply for the exemption of certain products from the tariffs on China. To secure an exemption, companies were required to demonstrate that the tariffs would result in "severe economic harm" to their business or U.S. interests and prove that no alternative products were available outside of China or that the product was not of strategic importance to China.

Between 2018 and 2020, the USTR received approximately 53,000 exemption requests, with 87% being denied, according to a review by the Government Accountability Office (GAO). The GAO review revealed "inconsistencies" in the USTR's review process and noted that the agency "did not fully document all of its internal procedures."

The Commerce Department's inspector general also identified shortcomings in a separate exemption process for Section 232 tariffs on countries other than China in 2019. The review pointed to "a lack of transparency that contributes to the appearance of improper influence in decision-making for tariff exclusion requests."

A subsequent report in 2021 concluded that U.S. companies were "denied exclusions based on incomplete and contradictory information." The unpredictability and murkiness of the process under the last Trump administration have led to fears that exclusions might be used to favor special interests.

One business executive, speaking anonymously, stated that "The process is potentially corrupt because it allows winners and losers to emerge from a decision that is not transparent." Academic research supports this fear, showing that companies whose executives donated to Republican candidates had a higher likelihood of being approved for exemptions from Trump's Section 301 tariffs on China.

The study, to be published in the Journal of Financial and Quantitative Analysis, found that only 14.6% of companies applying for exemptions between 2018 and 2020 were successful. However, the success rate increased by nearly four percentage points for companies that supported Republican candidates, translating to about one in five chances of winning, compared to one in seven for all companies. The research suggests that the system allowed the administration to reward its political allies and punish its adversaries.

The odds of obtaining an exemption decreased for firms whose executives supported the opposing party, with the probability of approval falling by 3.4 percentage points for companies that backed Democratic candidates. This represents a significant shift, changing the odds to about one in ten for firms with Democratic-leaning executives.

The study's findings are "strongly indicative of quid pro quo arrangements," showing that "the selling of political favors within the U.S. federal government can take place in the open." The paper did not accuse companies or U.S. officials of wrongdoing.

Jesus Salas, a co-author of the study and a finance professor at Lehigh University, went further, stating, "There is clear evidence of corruption." Salas found it astonishing that the USTR reviewed 50,000 tariff exclusion applications often within just two weeks, leading to "inconsistencies," including instances where two firms applying for an exclusion on the same product received different outcomes. "That doesn't make sense," Salas said. "It's just huge chaos for the firms." Salas believes that lobbyists and lawyers will benefit the most from this chaos and that it will likely increase political contributions to candidates. "If you see the benefit, why not do it?" he asked.

To prevent corruption and ensure a fair process, Salas argues that the exemption process requires significantly more transparency and congressional oversight. A spokesperson for the USTR, Sam Michel, stated that since Biden took office in 2021, the administration has run a "transparent and open" exemption process, with requests being considered "on their merits." To address concerns about political influence, Michel said the process is currently managed by career officials, not political appointees, and that the Biden administration does not permit meetings between USTR staff and companies lobbying for pending exclusion requests.

However, Veljko Fotak, a SUNY Buffalo finance professor and one of the authors of the study on tariffs, said that the "depressing" reality is that the process established under Trump's first term has not been significantly reformed under Biden. "We see no indication that the institutional weaknesses and potential for political distortions we documented in our study have been addressed," Fotak said. The stakes are high, as winning or losing an exclusion request can mean the difference between survival and failure for companies. The researchers found that companies that won tariff exclusions gained an additional $57 billion in combined market value.

David French, Executive Vice President of Government Relations at the National Retail Federation, said that retailers are already consulting with lawyers, lobbyists, and consultants to find ways to avoid the upcoming Trump tariffs. The retail trade group plans to commission economic studies, lobby, and engage in grassroots advocacy against tariffs. Madrecki, the Consumer Brands Association executive, said his industry has been in contact with lawmakers and Trump transition officials to express concern about the threatened tariffs, especially the across-the-board tariffs that have been threatened on all $3 trillion of U.S. imports. "It's a clear and present danger," Madrecki said. "We're not saying all tariffs are bad. But it should be done in a more strategic way rather than a sledgehammer thrown across the room."

Djavaheri, the president of the Los Angeles-based appliance company, plans to apply for tariff exclusions again. "I have to – otherwise I'm dead," he said. Djavaheri dismissed Trump's claim that China would pay the tariffs, a claim that is contradicted by research showing that Americans have borne almost the entire cost of the last round of tariffs on China. "That's nonsense. I'll show you my bills. I'm getting the bills," he said.