As President Donald Trump threatens new import duties beginning March 4, American businesses are exploring creative strategies to reduce tariff costs rather than moving production to the U.S.
The stakes are high, with Edward Steiner, senior director of international trade at law firm Sandler, Travis & Rosenberg, describing sweeping tariffs as potentially “existential” for many companies, The Economist reported last week.
With Trump promising “no exceptions” to his trade policies, businesses that benefited from exemptions during his first term—like Apple Inc (NASDAQ:AAPL)—may find relief harder to secure.
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Even relocating production from China to Southeast Asian countries might provide only temporary shelter.
“Companies could move operations to Thailand or Malaysia but end up having the same conversations in 18 months,” Dave Townsend of law firm Dorsey & Whitney told The Economist.
Instead, many businesses are turning to “tariff engineering,” strategically modifying products to change their official classification. The practice dates back to at least 1881, when the Supreme Court ruled that a sugar importer could legally alter merchandise to qualify for lower duty rates.
Additional tactics include using the “first-sale” provision, which allows importers to value goods based on manufacturer prices rather than the higher prices charged by middlemen.
Cash flow can be preserved by storing merchandise in bonded warehouses, where duties aren’t paid until goods are sold, or through temporary import bonds for items intended for re-export—strategies recommended last year by shipping giant Maersk to its clients.
While the administration may eventually target the workarounds—customs officials attempted to eliminate the first-sale rule in 2008 before being rebuffed by legal challenges—companies will likely continue finding creative solutions.
“People want stuff, and they’ll get it one way or another,” an unnamed trade lawyer told The Economist.
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