New research shows that the Trump administration was more likely to award lucrative tariff exemptions to companies that contributed to Republicans and less likely to give them to those who donated to Democrats.
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Investing in political connections during the Trump administration paid off for companies hoping to protect their products from tariffs, according to new research.
The researcher looked into “Section 301” tariffs, which were imposed on Chinese goods starting in 2018. They found that backers of Trump and the GOP were “significantly more likely to receive valuable exemptions” from these tariffs.
Companies that had donated to Democrats, on the other hand, were less likely to get exemptions.
“Our findings reveal that politicians not only use exemptions to reward their supporters, but also withhold exemptions to punish supporters of their opponents,” said Jesus Salas, one of the researchers who is an associate professor of finance at Lehigh University. “The tariff exemption grant process functioned as a very effective spoils system allowing the administration of the day to reward its political friends and punish its enemies.”
According to the research, which will be published in The Journal of Financial and Quantitative Analysis, the way the Trump administration allowed companies to request a tariff exemption made it easy to turn the process into a giveback for donors.
It was entirely up to the US Trade Representative (USTR) to make the determination who would qualify — without congressional oversight or an appeals process (it should be noted that, while there was clear evidence of partisan favoritism, the companies whose products actually met the criteria for exemptions were also more likely to earn them).
This was a marked difference to other programs that were put in place in the same year.
“Exemptions for the steel and aluminum tariffs were administered with greater transparency under the watch of a Commerce Department Inspector General and with congressional oversight,” according to the researchers.
In these cases, exemptions were granted much more fairly and did not appear to be tied to political donations.
To reach that determination, the researchers reviewed more than 7,000 applications for tariff exemption and cross-checked that information with lobbying and campaign contributions.
“While there is ample evidence in the broader literature that firms benefit from their political connections — with quid-pro-quo arrangements on both sides of the political aisle — this study is the first to document punishment for supporting the opposition,” said Salas.
In other words, campaign contributions and lobbying during the Trump administration paid off… if that money flowed into the right pockets.
While the tariffs themselves had a negative influence on the economy, the exemptions were quite lucrative.
Specifically, the companies reaped “abnormal returns of approximately 55 basis points in stock prices” within the first five days after announcing that they had “earned” the exemption.
While the research expected that benefit, the way these exemptions were used to punish businesses that gave to Democrats was not.
“The biggest surprise to us was that the US government was punishing firms that contribute to Democrats,” Salas said. “There is plenty of evidence that political connections are valuable to firms. The finding that the government could be vindictive to supporters of the opposition was very surprising to us.”
