Three ways companies are getting around tariffs

Summary

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Episode Overview

Podcast: The Indicator from Planet Money
Episode: Three Ways Companies Are Getting Around Tariffs
Date: August 26, 2025
Hosts: Adrian Ma and Paddy Hirsch

This episode dives into the world of "tariff engineering"—the creative, legal strategies companies use to minimize the impact of tariffs on imports, especially under President Trump's recent sweeping tariff regime. The hosts explore three main ways businesses adapt: modifying the product itself (tariff engineering), shifting where it's made (product engineering), and changing how its value is declared (valuation engineering). The show features insights from logistics expert Izzy Rosenzweig and trade attorney Lenny Feldman, offering illuminating examples and weighing the potential silver linings of this challenging economic environment.

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Key Discussion Points

1. Setting the Stage: The Era of "Tariff Engineering"

• Tariff engineering is the deliberate design or adjustment of products and supply chains to avoid or reduce tariffs, all within legal bounds.
• The Trump tariffs are outlined in two parts: a baseline 10% tariff on nearly all imported goods, and "reciprocal tariffs" that can vary widely by country ([02:00]–[02:18]).

"There's a phrase going around the business community right now that has the indicator written all over it. Tariff engineering. God, I love a good buzz term."
—Paddy Hirsch [00:14]

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2. Technique #1: Tariff Engineering – Changing What a Product Is Made Of

• Definition: Adjusting the component makeup of a product to qualify for a lower tariff bracket.
• Example:
  • A brand shifts its sweatshirt’s material blend from a higher-tariff mix (22%) to more cotton (12%), saving significant costs ([03:16]–[03:33]).
  • Savings must be large enough to justify the hassle and cost of changing suppliers or the production process ([03:33]–[03:42]).
• Limitations:
  • This strategy is less effective under the new tariffs, as reciprocal tariffs sometimes override product category distinctions.

"A real life example of our brands was a sweatshirt. This sweatshirt used to have a blend of materials that made the sweatshirt fall under a high classification, 22% base tariffs. And then that brand changed the blend more towards cotton, which brought it down to about 12% base tariffs."
—Izzy Rosenzweig [03:16]

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3. Technique #2: Product Engineering – Shifting Where Goods Are Made

• Definition: Arranging production so that the most important part of a product comes from a country with lower tariffs, thus changing the product’s country of origin in a legal sense.
• Complexity: With globalized supply chains, determining the true country of origin can be complicated ([04:51]–[05:11]).
• Example:
  • A blender may be mostly made in China, but if its blade comes from Japan, and the blade is the essential part, the blender can legally be declared Japanese-made for tariff purposes ([05:11]–[05:33]).
  • Importers are seeking out parts they can move to low- or no-tariff countries, such as producing key pump motor components in Mexico to benefit from USMCA (no tariffs on Mexican goods) ([06:12]–[06:27]).
• Risks: Companies walking a fine line—simply packaging in a low-tariff country doesn't count for origin, and violations can bring steep penalties ([06:46]).

"You can have the entire blender made in China, other than the razor or the slicer of the blender itself ... because the most important part of that blender is the blade. And that blade was made in Japan. Country of origin is legally Japan."
—Izzy Rosenzweig [05:11]

"It is very easy to make a mistake. Very easy. Like, oh, why don't I just package it in Mexico? Now it's made in Mexico. No, no. You get in a lot of trouble, you get fined, and they will catch up with you."
—Izzy Rosenzweig [06:46]

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4. Technique #3: Valuation Engineering – Adjusting Declared Value

• Definition: Using the "first sale rule" to declare the value of goods at the lowest legal transaction price—often the price paid to the manufacturer, not the final distributor ([07:32]–[07:54]).
• Example:
  • If a US importer buys suits from a supplier in Hong Kong for $80, but the supplier paid $50 to the manufacturer, the importer can (if properly documented) apply the tariff to the $50 price, not $80 ([07:32]–[07:54]).
• Legal Roots: This practice was established in 1988 in US courts, encouraging careful supply chain audits.
• Costs and Benefits:
  • While legal fees can run high, this deeper supply chain scrutiny helps companies ensure accurate values and potentially root out forced labor ([08:32]–[08:52]).

"The court said in that case, you can use that first sale price as opposed to the higher price to the US Importer ... They're not artificially lowering the price."
—Lenny Feldman [07:54]

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5. Silver Linings and the Future of Tariff Engineering

• Operational Upside:
  • The pressure of tariffs is forcing companies to analyze, optimize, and sometimes retool their supply chains, which could lead to long-term strategic gains.
  • Could lead to greater awareness around ethical sourcing (e.g., forced labor), and better supplier relationships.
• Global Implications:
  • Companies growing more adept at tariff engineering may even benefit in new regulatory climates, such as if the US were to adopt higher tariffs similar to the EU.

"It's requiring the importer to look deeper in their supply chain ... And it also, I think, helps ensure that there's not forced labor in the supply as well."
—Lenny Feldman [08:32]

"A lot of companies are becoming savvy and they're finding these opportunities. And I do think, for example, if we see the EU model with a 15%, I think ... companies may actually find themselves, if not better position on some of the tariffs if they handle it properly."
—Lenny Feldman [09:06]

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Notable Quotes and Memorable Moments

• On the true country of origin:
  "It's customs, Rorschach."
  —Paddy Hirsch [05:38]
• On the reality of product engineering:
  "If you've got no blade, what's the point, right?"
  —Paddy Hirsch [09:56]
• On ending on a positive note:
  "Good heavens, Adrian, I don't know how you feel. I just having told a story about tariffs that ended on an upbeat note."
  —Paddy Hirsch [09:28]
• Audience banter:
  Playful discussion about whether the blender blade or jar is the most crucial part of a blender ([09:56]–[10:24]).

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Timestamps for Key Segments

• [00:14] – Definition and introduction to tariff engineering
• [02:00] – Overview of current tariff landscape under President Trump
• [03:07] – Introduction to tariff engineering (what products are made of)
• [04:12] – Limitations of tariff engineering under reciprocal tariffs
• [04:36] – Product engineering (where products are made; country of origin)
• [05:11] – Blender example illustrating country of origin
• [06:12] – Strategy of shifting production to Mexico
• [07:00] – Clear recap: Tariff, product, and valuation engineering
• [07:32] – Valuation engineering (declared value and first sale rule)
• [08:32] – Silver lining: Deeper supply chain knowledge, forced labor prevention
• [09:06] – Future readiness and potential benefits of new trade realities
• [09:56] – Banter on the philosophy of blenders

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Summary

This episode of The Indicator delivers a clear, accessible breakdown of the smart and sometimes surprising ways that companies can avoid hefty tariffs without breaking the law. Through lively examples and expert commentary, the episode underscores both the complexities and opportunities in the modern world of global trade—showing how creative problem-solving, compliance, and careful supply chain management are more important than ever. Despite the disruption, tariffs may ultimately spur companies toward greater efficiency, agility, and even ethical supply chain practices.

Transcript

[Announcer]

Npr.

[Adrian Ma]

This is the indicator for Planet Money. I'm Adrian Ma.

[Paddy Hirsch]

And I'm Paddy Hirsch. There's a phrase going around the business community right now that has the indicator written all over it. Tariff engineering. God, I love a good buzz term.

[Adrian Ma]

Yeah, but the engineering we're talking about here is not the engineering that went into Trump's tariffs.

[Paddy Hirsch]

Tariff engineering is the way that companies get around these tariffs without breaking the law. Of course that's key.

[Adrian Ma]

So on today's show, we'll learn the tricks of the tariff dodging trade. We'll find out what's legal, what's not, and we'll hear about the possible silver lining to President Trump's tariff regime.

[Paddy Hirsch]

Oh, I do love a silver lining. That's all coming up after the break.

[Adrian Ma]

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[Paddy Hirsch]

Listeners will know this, but for any newcomers, a reminder that President Trump's tariffs fall into roughly 2 parts. Baseline tariffs or almost all goods from almost all countries anywhere on the surface of the globe are subject to a flat 10% tariff.

[Adrian Ma]

Sort of like a 10% cover charge to get into a club.

[Paddy Hirsch]

Exactly. And then there's the so called reciprocal tariffs based on, well, frankly, whatever their president sees fit. And initially when these tariffs were applied back in early April, it was chaos.

[Adrian Ma]

This is Izzy Rosenzweig. He's CEO of Portlis, which is a logistics company based in Toronto. So the business of getting stuff across the US Border is kind of his bread and butter. He says things in Tariff World have begun to calm down a bit. Importers are getting a clearer sense of how much they're going to have to pay the government in order to bring stuff into the US now that there.

[Izzy Rosenzweig]

Is more direction that we're going to work within a framework that is doable.

[Paddy Hirsch]

People can work with that, including by engineering their products in innovative ways. Today we're going to look at three of those innovations, three types of engineering that companies can do to lower their import tax burdens.

[Adrian Ma]

So first off, let's talk about tariff engineering. This is where you can tweak the components of a product that you're importing to try and get a lower tariff rate.

[Izzy Rosenzweig]

A real life example of our brands was a sweatshirt. This sweatshirt used to have a blend of materials that made the sweatshirt fall under a high classification, 22% base tariffs. And then that brand changed the blend more towards cotton, which brought it down to about 12% base tariffs.

[Paddy Hirsch]

Of course, changing the makeup of a product isn't cost free. You have to source the materials, maybe change the manufacturing process. You've got to have real volume, 100%.

[Izzy Rosenzweig]

Now, if your cost of good is 20 bucks, that's two bucks per order. You know, you do $1,000 a day, that's $2,000 a day, that's 60 grand a month. When there's enough savings, it's worth taking the time to do it.

[Adrian Ma]

Now, importers have been using this type of tariff engineering to cut their import costs for years, but it's actually become less useful under the Trump tariff regime. Lenny Feldman is an attorney at the law firm Sandler, Travis and Rosenberg, and he's also a former senior attorney for Customs and Border Protection. So Lenny really knows his tariffs.

[Lenny Feldman]

Tariff engineering has been interesting, but now that we have reciprocal tariffs in place, the classification is in some respects less relevant. Because regardless of where you classify your merchandise, you're still going to be faced with right now 50% from India, 50% from Brazil, 10, 20, 30% from other countries.

[Paddy Hirsch]

Importers are now coming to Lenny for advice on our second method of engineering, product engineering.

[Lenny Feldman]

Product engineering, as the name indicates, is to enable the importer to declare a different country of origin.

[Paddy Hirsch]

So remember, tariff engineering focused on what your goods are made of. Product engineering focuses on where your goods are made.

[Adrian Ma]

That where is actually not as simple to determine as it may sound. In these days of global supply chains, a product might have components sourced from two or three countries and, and might be assembled in a fourth. So in that case, what's the country of origin? To illustrate, Izzy says, imagine a blender.

[Izzy Rosenzweig]

You can have the entire blender made in China, other than the razor or the slicer of the blender itself. And let's say that's made in Japan. While even though a blender is very big, let's say it's a foot tall, 7 inches wide, and the blade itself is tiny one, because the most important part of that blender is the blade. And that blade was made in Japan. Country of Oregon is legally Japan.

[Adrian Ma]

This really feels like one of those eye of the beholder inkblot tests.

[Paddy Hirsch]

Totally. It's customs, Rorschach.

[Adrian Ma]

And this concept of country of origin is becoming a big deal for importers who are looking to cut their costs right now. If they can make the most important part of the product in a country with a lower tariff rate, they can save a lot of money. Yeah.

[Paddy Hirsch]

Lenny says he's getting a lot of calls from companies that import things from China that have electrical motors in them. Like the pump for the fountain on my patio, for example. If the importer can make one core part of that pump motor outside of China, it can make the rest of the pump in China, yet still avoid that eye watering China tariff.

[Lenny Feldman]

So companies have looked at their production processes and said, well, maybe if we take a portion of that production and we create that laminated core in Mexico, and now we have a country of origin, Mexico, which is the prize.

[Adrian Ma]

Yeah. Goods made in Mexico are typically subject to zero tariffs thanks to the trade agreement between the U.S. mexico and Canada, also called the USMCA. And Izzy says those potential savings are huge if done right. And this creates a temptation for companies to sometimes play it a little fast and loose.

[Izzy Rosenzweig]

It is very easy to make a mistake. Very easy. Like, oh, why don't I just package it in Mexico? Now it's made in Mexico. No, no. You get in a lot of trouble, you get fined, and they will catch up with you. There's many stories of people being caught doing a fake country of origin, and it's just not worth it.

[Paddy Hirsch]

All right, here's a quick recap. Tariff engineering. That's what your product is made of. Product engineering. That's where your product is made. And now the third kind of engineering. Valuation engineering, as in how much is your product worth?

[Adrian Ma]

Again, a seemingly simple question with a frustratingly not simple answer. So let's say you import men's suits from Hong Kong. You pay a supplier 80 bucks for the suit. And US Customs says, okay, the value of the suit's 80 bucks and you have to pay a percentage of that as your tariff.

[Paddy Hirsch]

But hold on, you say the supplier who Sold me that suit. Well, he didn't actually make it. It was actually made by a tailor in Shenzhen or wherever the supplier bought it from him for just 50 bucks. And that's how much I should be paying tariffs on the first sale price. Lenny's firm actually brought a case like this to the Court of international trade in 1988, and it estab called the first Sale Rule.

[Lenny Feldman]

The court said in that case, you can use that first sale price as opposed to the higher price to the US Importer because that's a sale for export destined, clearly destined to the United States. They're not artificially lowering the price.

[Adrian Ma]

This first sale rule is pushing a lot of importers to look at exactly how much their products cost to make in hopes that they can declare cheaper goods and end up paying lower tariffs.

[Paddy Hirsch]

That kind of forensic work can be expensive. Lenny says importers can pay lawyers and accounting firms tens of thousands of dollars. But here's the silver lining we promised you. It could come with all sorts of benefits.

[Lenny Feldman]

It's requiring the importer to look deeper in their supply chain to know who is that manufacturer that's selling to their vendor to make sure that they are aware of whether that factory is providing an accurate value. And it also, I think, helps ensure that there's not forced labor in the supply as well.

[Adrian Ma]

Both Lenny and Izzy agree that while tariffs represent a real disruption of global trade, they also present an opportunity.

[Paddy Hirsch]

Yeah, they're forcing companies to examine and overhaul their supply chains in ways that could benefit them in the long term.

[Lenny Feldman]

A lot of companies are becoming savvy and they're finding these opportunities. And I do think, for example, if we see the EU model with a 15%, I think based on some type of supply chain restructuring or reconfiguration or engineering, companies may actually find themselves, if not better position on some of the tariffs if they handle it properly.

[Paddy Hirsch]

Good heavens, Adrian, I don't know how you feel. I just having told a story about tariffs that ended on an upbeat note. It's making me feel quite dizzy. Could you pass the smelling salts?

[Adrian Ma]

We need to ring a bell or something. This episode was produced by Corey Bridges with engineering by Jimmy Keeley. It was fact checked by Sierra Juarez Cake and Cannon edits the show and the indicators for production of npr. You know, I'm still thinking about from that blender example. Is the blade really the most important part of a blender?

[Paddy Hirsch]

Well, if you've got no blade, what's the point? Right?

[Adrian Ma]

But then if you don't have a jar to surround the blade, then you just got a spinning blade on a stand.

[Paddy Hirsch]

But I could see that's no good. You could see yourself kind of doing like if you dropped that jar on the ground, I could feasibly see a workaround. You know, you get a couple of towels together and maybe like a bowl or something. I feel like you could get around it. But the blade.

[Adrian Ma]

Chuck your fruits at the at an exposed spinning blade.

[Paddy Hirsch]

Yeah, that sounds messy.

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