Illustration: Sarah Grillo/Axios

Despite possible progress toward a trade deal with China, American companies are frustrated by the opaque process for gaining an exemption to President Trump's tariffs on Chinese goods.

Why it matters: Exclusions are the only way for companies to seek relief from the pain of the trade war that’s upending the global economy.

  • Of 44,000 applications submitted to the president's trade office, only 4,800 have been approved, according to an analysis done for Axios by George Mason University’s Mercatus Center.

Companies are in the dark about what it takes to be granted a pass by the United States Trade Representatives Office (USTR), an extension of the president's executive office.

  • A lot of money is at stake: Tariffs on goods coming from China, imposed by Trump in several waves, have already cost businesses billions.
  • CEOs warn they may have to pass these costs along to consumers, if they haven't already.
  • The import taxes run as high as 25%.

Exclusion applicants say they're doing all the right things but are sitting in limbo or "still ending up with products that are not being approved," Stephen Lamar of the American Apparel & Footwear Association, a trade group, tells Axios.

  • "That lack of explanation about why some petitions were successful and others weren't, I think, is very frustrating for people."
  • Companies are in the dark about when they can expect an answer from USTR on exclusions.

The intrigue: To boost their odds of getting an exclusion, companies are hiring outside lawyers to file requests and flexing connections on Capitol Hill. But it's not clear how much either move helps.

  • For example: A company in Long Island that sells inflatable boats reached out to Rep. Lee Zeldin (R-N.Y.).
  • Zeldin's office wrote a letter to USTR that "was very supportive, and indicated the fact that we do create jobs in the U.S.," John Hoge, co-owner of Sea Eagle Boats, tells Axios.
  • The company got only seven of its 21 exclusion requests approved — and doesn't know why those were approved, while 11 others were denied (three are still pending).

Tensions are running high: "The U.S. Trade Representative's exclusion portal is the most important place for the global economy right now," Daniel Ujczo, an international trade and customs lawyer, tells Axios.

  • "If I'm an economy-watcher, I'm going to be watching who's getting exclusions and who's not," says Ujczo, whose firm, Dickinson Wright, has filed exclusions on behalf of clients.

Where it stands: While the U.S. and China seem poised to sign a partial trade deal, more than $350 billion of Chinese imports still face tariffs.

  • The trade office is so overwhelmed that it hired more people to sift through the deluge of requests — sometimes plucking workers with limited trade experience, sources familiar with the exclusion process tell Axios.
  • The USTR did not respond to multiple requests for comment.

Driving the news: There is some evidence that larger corporations — as well as ones with powerful political ties — are having better luck.

Apple submitted 15 exemption requests for parts for its Mac Pro computer.

  • In July, Trump tweeted his opposition: "Apple will not be given Tariff waiver, or relief, for Mac Pro parts that are made in China."
  • In August, the president tweeted: "Having dinner tonight with Tim Cook of Apple. They will be spending vast sums of money in the U.S. Great!"
  • In September, 10 of Apple’s exclusion requests were granted, and the company said its new computer would be made in Texas.
  • Last week, Apple submitted 11 additional requests covering products like the Apple Watch and the HomePod that are subject to the most recent round of tariffs, which took effect in September. (The USTR has not ruled on those yet.)

Separately, an internal watchdog criticized the Commerce Department's handling of a parallel exclusion process, one granting breaks on imported steel and aluminum tariffs.

  • After an audit of the process, Commerce’s inspector general alleged “improper influence in decision-making."

How it works: China tariff exemption hopefuls — including household names like QVC and Hallmark — are required to fill out a questionnaire on the USTR’s web portal.

  • Among other questions, companies are asked whether the product is available in the U.S. or if it can be sourced from countries other than China.
  • Applicants must explain whether the product is "strategically important" to China's “Made in China 2025” plan.

Answering “yes” to either question would seemingly hurt one's chances, but lawyers say that’s not always the case.

  • Meco, a Tennessee-based manufacturer of grills and furniture, saw lots of requests approved after saying that costs kept it from sourcing items elsewhere than China.
  • The company lobbied the USTR on trade matters related to "domestic charcoal grill manufacturers," per public filings.

On the flip side is Zoom Telephonics, a Boston-based cable modem manufacturer. It submitted dozens of exclusion requests, but withdrew them after 18 were denied.

  • The company revised its exclusion requests to include letters from members of Congress, local politicians and others.
  • The new applications focus on how tariffs — which the company blames for its 2Q loss — could harm workers.
  • Frank Manning, CEO of Zoom Telephonics, tells Axios that ongoing uncertainty over tariffs "dramatically impacts very significant planning."
  • "How much should I be prioritizing getting out of China? If I knew that I was going to win the [exclusion] filing, I shouldn't be prioritizing," he said.

The bottom line: Lawmakers from both parties are voicing concern about the USTR’s exclusion process.

  • Sen. Lamar Alexander (R-Tenn.) recently wrote a letter asking U.S. trade representative Robert Lighthizer to "update and improve the current exclusion process and better inform businesses on how to respond appropriately and make the necessary adjustments."
  • Sen. James Lankford (R-Okla.) tells Axios: “I've pushed on Lighthizer to say...if you’re going to have an exclusion process, it has to be run well.”

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