The real product of America's tariffs is the exemption

Posted on: 11 September 2026

On Monday 7 September Trump posted on Truth Social that Bombardier would no longer sell aircraft in the United States because its products are not good enough, the stock fell between five and nine per cent, and the press covered first the threat and then the break with him by Kansas Republicans, in whose state the Canadian manufacturer keeps the headquarters of its defence division. The part worth attention is not the threat but the response it drew.

Jerry Moran, who chairs the Senate appropriations subcommittee for Commerce, Justice and Science, which is to say the panel that writes the Commerce Department's budget, said he had contacted the administration to make sure the president understood Bombardier's contribution to Kansas and the importance of its presence in Wichita. Roger Marshall wrote on X that he would fight for the 1,200 Kansas jobs, adding that he had already taken that concern into the Oval Office. Congressman Ron Estes, without addressing the president directly, called publicly for a tariff exemption on aircraft components.

Three exemption requests in three different registers, none of them filed on a form. Understanding why they arrive in this shape explains American trade policy far better than any argument about the rate, and the place to begin is a fact almost nobody set alongside the news: there is at present no tariff instrument available to use against Bombardier.

On 20 February 2026 the Supreme Court held six to three that the International Emergency Economic Powers Act does not authorise the president to impose tariffs, observing that the statute speaks of regulating importation and never once mentions duties or taxes, because to regulate is not to tax. With that ruling the broadest and procedurally cheapest instrument the executive had was gone. On 9 July 2026 the same administration then closed, without imposing any duty at all, the Section 232 investigation into commercial aircraft, jet engines and parts that it had opened on 1 May 2025, replacing the tariff with 180 days of negotiation that expire around 5 January 2027. Aerospace is therefore the one sector formally examined and then deliberately left outside the tariff wall, by the same president, eight weeks before Monday's post. What remains on the table is not a tax but an individual relationship to be negotiated, which is why the response arrived as telephone calls rather than as legal filings.

The precedent has been measured. Between 19 March 2018 and 18 November 2019 the Commerce Department received 106,155 requests for exclusion from the Section 232 duties against the roughly 4,500 it had forecast, missing its own deadlines in 79 per cent of cases. Taken on their own these figures describe an agency swamped by volume, while the number that matters sits elsewhere.

Roughly a quarter of requests drew an objection from a domestic producer, and that changed everything: where an objection was filed, steel requests were denied 82 per cent of the time, and where none was filed the denial rate fell to 14. The outcome therefore turned not on the product, the volumes or the genuine availability of that steel on the domestic market, but on something external to the firm making the request, namely whether a competitor noticed the filing and had the apparatus to oppose it within the deadline. The duty was the general rule, yet the general rule decided nothing: what decided was the individual proceeding, which rewarded whoever was watching the file.

How that proceeding actually worked was set out by the Department's Inspector General in a memorandum of October 2019, which found that the responsible bureau had reopened exclusions already granted and published at the request of an objector, that it had altered its internal evaluation criteria within days of receiving a communication from an objector without consulting the other parties, and that of more than a hundred meetings and telephone calls with interested parties not one had a written record of what was discussed. There is no need to call this corruption, because it is what an architecture produces by itself once discretion is wide, criteria can be changed mid-course and documentation is optional. Nobody has to want it for it to happen.

The same mechanism had already been measured fifty-two years earlier by Anne Krueger, the American economist who went on to become chief economist of the World Bank and then second in command at the International Monetary Fund, and who gave the phenomenon its name in the very paper at issue here. The argument of that 1974 article is that a quantitative restriction creates a rent for which operators compete by spending real resources, from productive capacity built for no purpose other than qualifying to positions sought inside the administration doing the allocating. In India in 1964 those rents were worth 7.3 per cent of national income, two thirds of it attributable to import licences alone. The real cost was never the duty but what firms spent to stay on the right side of the gate.

Which brings us to the part nobody is discussing and which to my mind is the most consequential development of the past eighteen months. On 10 February 2025 the exclusion process for steel and aluminium was terminated, the General Approved Exclusions lapsed the following month, and in their place came an inclusion process, in which the petition is filed by the domestic producer asking that further products be brought under the duty, through two-week windows opening three times a year. On 19 August 2025 a further 407 tariff codes were added. The gate still opens, then, but in one direction only: a firm with a relationship in Washington can have a competitor brought inside the tariff wall, while a firm on the receiving end no longer has a form on which to ask its way out.

Then there is Section 338 of the Tariff Act of 1930, invoked in the nineteen-thirties against France, Spain, Germany and Australia but never once used to actually impose a duty in almost a century, which permits up to fifty per cent ad valorem against a country discriminating against American commerce with no requirement for an investigation, a publication, a comment period or a hearing, thirty days' notice being sufficient. Proclamations 11046, 11047 and 11048 of 20 July 2026 applied it to Canada on alcoholic beverages, dairy and motor vehicles with effect from 00:01 on 19 August, save that a fourth proclamation then moved that date to 22 August, justifying the suspension by reference to Ottawa's expressed commitment to remove the discriminations. Talks broke down on 21 August and the duties took effect the following day. Those three days are worth pausing over, because a seventy-two hour suspension granted by presidential proclamation is itself an act of exemption, exercised at the scale of the calendar.

It is the clause that follows, though, that makes everything else legible. The text of those proclamations provides that the duties shall not apply to articles already subject to Section 232, nor to articles, excluding unmanned aircraft, covered by the World Trade Organization Agreement on Trade in Civil Aircraft. Which is to say that Canadian civil aircraft were already exempt from the fifty per cent by the written will of the same president, from 20 July, seven weeks before that same president announced that those aircraft should no longer be sold in the United States.

Nobody filed anything to obtain that exemption. There is no form, no deadline, no competitor able to lodge an objection, no file to watch. The exemption is no longer requested, it is received. Whoever gets it finds out by reading an annex.

The demand for exemption, then, does not disappear when the form disappears, it simply changes shape: the 106,155 filings of 2018 at least left a trail made of an applicant, an objector, a date and an outcome, whereas today, in the sectors that matter most, all that remains is the clause written into the annex and the telephone call of whoever has standing to make it. Which makes Moran's call, coming from the chairman of the subcommittee that funds the department administering those very procedures, not an item of political reporting but the institution that has taken the file's place.

From this follows something that inverts the naive expectation that business lobbies against protectionism. Business lobbies for its own exemption, which has value only for as long as the duty continues to exist for everybody else, so that whoever gets through the gate becomes the gate's most reliable defender. The regime builds its own coalition out of the firms it hit first.

If you are sitting on the other side of that table, there are four things worth not doing.

Do not infer your position from the announcements, because Bombardier's legal position sat in a subordinate clause of a July proclamation while the September headline said the opposite, and of the two only the first has any customs effect. Read the annexes.

Do not optimise on the rate, which is the most visible variable and simultaneously the least stable, so much so that in February a single judgment wiped out part of it in a day while the proceeding survived untouched. Optimise on the proceeding, because the proceeding outlives the judgments.

Do not treat exemption as a legal problem, given that the outcome turns on a competitor's objection, which is a variable your lawyer does not control, whereas the map of which competitors keep a permanent watch in Washington is knowable in advance by anyone willing to build it.

And do not ask in public. Moran, Marshall and Estes made Bombardier's industrial geography in Kansas known within twenty-four hours, so that anyone negotiating against the United States now knows where to strike to generate friction inside the Republican coalition, which turns an exemption won publicly into a target handed over for the next round.

Three markers are worth watching instead of the announcements. The first expires around 5 January 2027, at the end of the 180 days opened on 9 July: if by then something appears on the record concerning Bombardier, a Federal Register notice or a determination from Commerce or the Trade Representative, Monday's post was negotiation, and if nothing appears it was residue. The second is the approval rate in the coming inclusion windows, reconstructable from the public docket BIS-2025-0023 on Regulations.gov, because if it stays near a hundred per cent that process is not a technical filter but a service counter. The third is the names of the petitioners, which sit in the same docket: whoever appears across consecutive windows is not defending a product, they are building a position.

In 1974 the future deputy head of the IMF measured all of this on economies nobody in the West would have held up as a model. For the United States of 2026 that number has yet to be calculated by anyone.