Dive Brief:
- Seventy-five percent of U.S. companies that receive refunds from nearly $170 billion in tariffs deemed illegal by the Supreme Court plan to retain the windfalls in cash, the Federal Reserve Bank of Atlanta found in a survey.
- Companies will also use the reimbursements to cut prices, rebate customers, reward shareholders, give bonuses to employees, or fund new capital projects or research and development, the Atlanta Fed said, citing a survey last month of 1,156 top executives.
- “Although these are surprising uses of cash windfalls relative to the predictions of standard models, these results also suggest that a nontrivial portion of tariff refunds directly benefit customers and employees,” the Atlanta Fed said.
Dive Insight:
The Trump administration is well into the reimbursement of the import taxes as required by the Supreme Court in a February ruling. As of the end of July, it had refunded $100 billion in duties plus interest, according to an Aug. 4 court filing by U.S. Customs and Border Protection.
Nine percent of companies surveyed have received tariff refunds and 14% believe they are eligible for reimbursement, the Atlanta Fed said.
The companies have, on average, received a refund equivalent to 1.7% of annual revenues, Brent Meyer, Atlanta Fed vice president and senior economist, said in an interview.
“The stakes are the greatest for companies that are financially constrained,” he said.
“If you’re a firm that is under some significant financial constraints, these things have a much more first-order impact on your viability than on the typical firm,” he said.
Large companies are more likely to seek and receive a reimbursement than their smaller counterparts, the Atlanta Fed said, noting that publicly listed companies are more than twice as likely to have gotten the reimbursement.
“Although it makes sense that larger firms with greater resources can more readily navigate the refund process, our Atlanta Fed colleagues note that one-third of tariff refunds go to the most financially constrained firms,” the district bank said.
Seventy percent of companies have assigned employees to apply for refunds, 22% have hired a third party to do so and 1.2% have sold their rights to reimbursement to a third party, the Atlanta Fed said.
While three out of four companies plan to retain at least some of the refunds as cash, more than half plan to channel some of the windfall to R&D or capital investment.
Among the other uses: Approximately 17% of the companies plan to provide customer rebates; 15.6% plan a pay-out to shareholders; 14.8% plan to lower prices; 12.7% plan to pay bonuses to staff; 10.1% plan to provide company managers with bonuses; and 8% plan to pay down liabilities, the Atlanta Fed said.
When considering where to deploy the windfall, C-suite executives need to weigh financial, accounting and legal considerations, as well as customer relations.
Many companies face proposed class action lawsuits focused on tariff refunds.
