In recent months, interest has grown in the work of professionals who spend their days looking for ways to mitigate the negative effects of President Trump’s trade policies – particularly, his predilection for raising tariffs on nearly everything that crosses the U.S. border.
U.S. importers can avail themselves of a variety of domestic programs to help reduce or eliminate the new duties, including Exemption Requests, Bonded Facilities and Duty Drawbacks. One surefire way of avoiding the problem altogether is to move production from a jurisdiction that is subject to a high duty to one that attracts a lower duty. The U.S. plant that made Life Savers was a casualty of such “strategic sourcing”. Once manufactured proudly in Michigan, production of the iconic candy was moved to Canada when the company could no longer afford the high cost of U.S. import duty on sugar. In Canada, Life Savers’ benefits from both duty-free importation of its main ingredient and tariff exempt exportation of the finished candies into the U.S. market under NAFTA.
Where trade professionals truly shine, however, is when a strategy of Tariff Engineering is undertaken. Tariff Engineering involves changing the characteristics of a product just enough so that it can be classified under a tariff code that attracts a lower rate of duty. This is no simple feat, as customs authorities actively look for “disguise” or “artifice” and assesses whether an article is a “commercial reality” (i.e., whether it is sold or otherwise entered into the stream of commerce in the condition as imported).
U.S. Customs once came down hard on a company that imported feather dusters , when it discovered that the feather dusters were being disassembled so that the feathers could be sold separately or used in the manufacture of boas and hats.
One remarkably successful feat of tariff engineering endures to this day. The creative people at Converse (now owned by Nike) apply a thin felt-like layer of fuzz to the soles of their running shoes. The purpose of the felt, which eventually wears away, is not to enhance the performance or look of the shoes, but to ensure that the company’s imported footwear can be classified as “slippers” . Slippers, you see, are subject to a much lower rate of duty than running shoes (12.5% vs. 90¢/pr. + 37.5% NTR duty) when imported into the U.S.
The practice of tariff engineering need not involve such a radical modification of the product. In the U.S., many textile articles can attract dramatically lower tariffs after a trivial change in composition. Take for example, the case of a “woman’s woven blouse comprised of 50% cotton-50% polyester”. A mere 1 percent increase in the blouse’s cotton content, will reduce the duty from 26.9% to 15.4% under the Normal Trade Relations tariff treatment.
With no end in sight to the imposition of punitive and retaliatory tariffs, demand for that unique blend of deep domain expertise and innovative thinking will only grow.