A study by Veljko Fotak, Associate Professor of Finance at the University of Buffalo, Grace Lee, Associate Professor in Accounting and Taxation at Fordham University, William Megginson, Professor of Finance at the University of Oklahoma, and Jesus Salas, Associate Professor of Finance at Lehigh University, found that the tariff exemption system “functioned as a “spoils system” rewarding political supporters and punishing opponents.”
From the Lehigh University press release:
[C]ompanies that made substantial investments in political connections to Republicans prior to and during the beginning of the Trump administration were more likely to secure exemptions for products otherwise subject to tariffs.
Conversely, companies that made contributions to Democratic politicians had decreased odds of tariff exemption approval. ...
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.
The authors analyzed applications for exemptions filed with the Office of the U.S. Trade Representative, political activity data from OpenSecrets, and business information from the Compustat Financials Dataset to “determine the extent to which lobbying and campaign contributions influenced tariff exemption outcomes.” Of the 7,015 exemption applications reviewed, 14.5% were approved. Increased lobbying expenditures increased approval odds by 2.15% and contributions to Republican candidates via PACs improved their odds by an additional 3.94%. Companies that contributed to Democratic candidates decreased their approval odds by nearly the same amount - 3.4%.
When only 1 in 7 applications is approved, those small percentages can translate into big financial advantages.
The study determined:
[A]nnouncements about exemptions were linked to abnormal returns of approximately 55 basis points in stock prices within the five-day window around the announcement.
For a median company in the sample, one with a market capitalization of $10 billion, this reaction represented a valuation increase of about $51 million.