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.
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]
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]
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]
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]
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]
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]).
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
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.