“Move your supply chains back to China.” Believe it or not, that’s the message a two-year lapse in a 50-year-old tariff program is sending to small businesses. The expired Generalized System of Preferences (GSP) program, combined with tariffs as high as 42% on Chinese imports, is creating a damaging concoction for firms with global operations.
For many small businesses, the work of Congress often seems remote. But the plight of one small business shows the mounting costs of tariffs following the lapse of the GSP in 2020. Lay-n-Go — an organizational solution company headquartered in Alexandria, Virginia — has found itself in the crosshairs of tariff actions for more than two years now.
“We are a small business. We try not to complain, we try to adapt,” said Adam Fazackerley, Lay-n-Go Founder and Chief Operating Officer. By moving manufacturing away from China, he and his wife believed they were doing what successive U.S. administrations and Congress had signaled they wanted. “And you screwed us,” he recently told The Wall Street Journal.
Tariffs were imposed on Chinese goods in 2018 with the aim of incentivizing firms to move their supply chains out of the Middle Kingdom. However, the lapse of GSP has been tilting the balance back to China for a variety of companies like Lay-n-Go.
For nearly five decades, GSP waived U.S. tariffs on nearly 5,000 products from approximately 120 countries. More often than not, GSP beneficiaries are natural alternative suppliers to China. The program’s elimination of duties on China’s competitors often makes GSP countries a better choice than low-cost Chinese producers.
It is estimated that importers have paid an additional $1.1 billion in tariffs on goods from developing countries that would normally be covered by the program, which is exemplified by the case Lay-n-Go provides.
Two days before Christmas 2021, Lay-n-Go’s manufacturer hit the firm with a whopping $97,000 bill for back tariffs from orders they had previously placed in Cambodia since GSP expired a year earlier. Similar situations have ensued since.
“The manufacturer was under the impression that GSP would be applied retroactively and gave us some time, but, ultimately, there came a point where they couldn’t carry the costs any longer,” Fazackerley added.
Lay-n-Go moved its entire supply chain to Cambodia — a GSP beneficiary — to avoid the tariffs levied on Chinese goods during the Trump administration. However, since GSP lapsed, the company was faced with intense price pressure to move operations back to China in 2021 just to keep inventory coming in.
These developments are a signal to lawmakers that their failure to act promptly on GSP renewal has real world consequences for American workers and companies. It underscores the damage this reauthorization lapse is causing.
“After the supply chain broke down and GSP was not renewed on schedule, we needed to have a stabilized system again. Although more costly to us, China was the best option,” Fazackerley said at the time. “The net negative has continued to compound and there has been no positive. Renewing GSP would be a good first step toward relief.”
The Chamber has been pushing hard for the reauthorization of this program — in this letter to the Senate Finance and House Ways and Means Committees and in other recent content. We hope that a landing zone on GSP is prioritized as the legislative season gains momentum.
The Chamber urges lawmakers to move swiftly to renew GSP. For firms like Lay-n-Go, the time for patience is long past. Each day that goes by without the program’s renewal means mounting tariff costs for businesses of all sizes.
Story by US Chamber
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