Trumps Trade Agenda Could Benefit Friends and Punish Rivals

The sweeping tariffs that President-elect Donald J. Trump imposed in his first term on foreign metals, machinery, clothing and other products were intended to have maximum impact around the world. They sought to shutter foreign factories, rework international supply chains and force companies to make big investments in the United States.

But for many businesses, the most important consequences of the tariffs, enacted in 2018 and 2019, unfolded just a few blocks from the White House.

In the face of pushback from companies reliant on foreign products, the Trump administration set up a process that allowed them to apply for special exemptions. The stakes were high: An exemption could relieve a company of tariffs as high as 25 percent, potentially giving it a big advantage over competitors.

That ignited a swift and often successful lobbying effort, especially from Washington’s high-priced K Street law firms, which ended up applying for hundreds of thousands of tariff exemptions. The Office of the United States Trade Representative, which handled exclusions for the China tariffs, fielded more than 50,000 requests, while the Commerce Department received nearly 500,000 exclusion requests for the tariffs on steel and aluminum.

As Mr. Trump dangles new and potentially more expensive tariffs, many companies are already angling to obtain relief. Lawyers and lobbyists in Washington say they are receiving an influx of requests from companies that want to hire their services, even before the full extent of the president-elect’s tariff plans becomes clear.

In his first term, Mr. Trump imposed tariffs of as much as 25 percent on more than $300 billion in Chinese goods, and 10 percent to 25 percent on steel and aluminum from a variety of countries, including Canada, Mexico and Japan.

This time, Mr. Trump has threatened to impose a 60 percent tariff or more on China, and tariffs of 10 percent to 20 percent on most other countries. He has also suggested targeting particular companies or industries.

It remains unclear which of these plans he intends to follow through on, and he has not clarified whether he would once again offer companies exclusions from the tariffs. On Friday, Mr. Trump announced that he had picked Scott Bessent, a billionaire hedge fund manager, as his Treasury secretary. Mr. Bessent has described Mr. Trump’s tariffs as a negotiating strategy to secure better free trade deals, suggesting he may favor a less aggressive tariff policy.

While Mr. Trump has often promised to “drain the swamp” in Washington, some have argued that these trade rules did the opposite. Tracking by OpenSecrets, a nonprofit organization, showed that the number of clients lobbying Congress on trade issues ticked up noticeably once Mr. Trump took office, growing more than 50 percent from 2016 to hit a record high in 2019.

One recent economic study also found evidence that Trump officials had used the exemption process to reward their supporters and punish opponents.

The study, which looked at nearly 7,000 company applications, found that an increase in past contributions to Republicans raised the likelihood of a company’s receiving an exemption. A history of past contributions to Democrats, meanwhile, decreased a company’s chances of winning a lucrative exemption.

Jesus Salas, a professor at Lehigh University and one of the study’s authors, called the exclusions process “a very effective spoils system.”

“I would not be surprised at all if this happened again,” he said.

Simon Johnson, the British American economist who won a Nobel Prize last month, said higher tariffs could lead companies to stress “a lot more gamesmanship and a lot more effort going into playing the system and getting special breaks,” rather than “focusing on becoming more productive and creating more jobs.”

Some trade experts say Mr. Trump and his advisers could choose not to offer exclusions, arguing that companies have had enough time to move factories out of China. The Biden administration has maintained Mr. Trump’s tariffs, but it has gradually wound down the exclusions processes for China tariffs, while continuing to grant them for tariffs on steel and aluminum.

On the other hand, trade experts say, if there are no exclusions for Mr. Trump’s future tariffs, the levies could harm American factories that may not be able to buy certain parts and components outside China. A big tariff on those products could convince manufacturers that it makes more economic sense to set up their factories outside the United States entirely. That would undercut the central goal of Mr. Trump’s tariffs, which is to push companies to make their products in the United States.

In Mr. Trump’s first term, officials argued that their exclusions system would offer companies relief in cases where the tariff would harm American interests, or where substitute products weren’t available outside China.

But for many critics, the administration’s decisions on exclusions often seemed mysterious and arbitrary. Tariff exemptions were given to Bibles but not to textbooks, to salmon but not to pollock, to children’s car seats but not to baby cribs. The decisions were not subject to appeal.

Many small businesses complained that they did not have the resources or understanding of Washington to file any exclusions, while some firms filed more than 1,000 requests alone.

Law firms staffed by former Trump administration officials swelled their lists of clients. One congressman’s office sent a letter to Trump officials questioning why the lawmaker should provide support for the administration’s choice legislation while certain exclusions for companies in his district had not yet been approved, an investigation by ProPublica found.

Chief executives also exerted their influence: Tim Cook of Apple repeatedly lobbied President Trump to loosen his administration’s restrictions on trade with China, and secured exemptions for the iPhone and other Apple products.

Other companies were allowed to file objections to any firm’s application, and some were dismayed to see their competitors weigh in against their requests.

Nicole Bivens Collinson, a trade lawyer at Sandler, Travis & Rosenberg, said she had seen examples in which companies colluded with business partners to file objections to tariff relief requests by competitors. “That goes on, but it’s difficult to prove,” she said.

Part of the problem for the government was the huge volume of requests. While previous administrations had offered exclusions processes over the years, no process existed at the time, so Trump officials had to quickly create one.

Understaffed government agencies were swiftly overwhelmed by tens of thousands of requests. The most prolific single requester, Alloy Tool Steel, put in nearly 40,000 requests for exclusions.

Subsequent investigations found unfairness in the process. In 2019, the Commerce Department’s inspector general found that there had been “the appearance of improper influence in decision-making.” At the Office of the United States Trade Representative, a government investigation found “inconsistencies” in decisions and a lack of transparency.

A similarly uneven process played out for farmers who had been hurt by Mr. Trump’s tariffs. In 2019, his administration began approving tens of billions of dollars to offset farmers’ losses from his trade wars, which had prompted retaliation from China and other countries.

A government watchdog found that the payments favored farms in the South over those in other areas, gave higher payments to farmers of cotton than to farmers of other crops and funneled more money to big farms than to small ones. Another study showed that many payments went to wheat farmers, despite their relatively low shipments to China.

Some lawyers and companies say that exceptions are still badly needed, and that the system has become more systematic and orderly over time.

“It is, in my view, becoming the way you do business,” Ludmilla Kasulke, a partner at Squire Patton Boggs, said. She said companies were preparing themselves to make the best of whatever tariffs and exclusions might be available.

“Businesses and stakeholders are going to be thinking about — should be thinking about — where those various pivot points are going to be, where they have an opportunity to make their case,” she said.