If you've been following my newsletters, you know I’ve covered the importance of lobbying, navigating business uncertainty, pension funds investing locally, and lowering trade barriers within countries like Canada. All of these are critical pieces of the puzzle when it comes to creating a stable and profitable business environment. But today, we’re diving into another high-stakes issue: tariffs—how companies are working around them, and what strategies actually work (because let’s be honest, bending the rules—legally—is a time-honored tradition in business).
Tariffs have been a business headache for centuries. In 1881, American customs officials caught a sugar importer altering the color of their product to game the tariff system—an act the Supreme Court ultimately ruled legal. Fast forward to today, and companies are still playing chess with trade regulations to stay competitive. With Donald Trump threatening new duties on imports, businesses must get creative to protect their bottom lines.
🔍 Navigating the Tariff Minefield
Tariffs are more than just taxes—they’re tools of economic warfare. Companies face two choices: absorb the cost (hurting profits) or find legal ways to sidestep them. And given that $4 billion was spent on lobbying in the U.S. in 2023, it’s clear that businesses are actively shaping trade policies to their advantage. But what if you don’t have a team of lobbyists on speed dial? Here’s what smart companies are doing instead (hint: they’re not just rolling over and paying up).
💡 1. Tariff Engineering: Redesigning to Reclassify
One of the most effective strategies is tweaking product designs to fall into a lower tariff category. Consider:
🔹 Converse, which altered its Chuck Taylor shoes by adding a thin layer of fabric under the insole—cutting tariffs from 48% to 7.5%.
🔹 Columbia Sportswear, which strategically added pockets below the waist to reclassify shirts and blouses into lower-taxed categories.
🔹 Spanish exporters who shifted to product varieties that were exempt from tariffs (Minondo, 2023a, 2023b).
🔹 Lu and Hsu (2021) identified six product design strategies for Chinese home appliance firms to legally reduce tariff costs.
Don’t forget that the U.S. is the only nation in the world that has gendered based tariffs. They are higher on womenswear than on menswear…a golden opportunity for products reclassification.
🔁 2. Country of Origin Maneuvering
Shifting production entirely to a tariff-friendly country is costly, but partial production relocation, supplier diversification, and contract manufacturing can be game-changers.
🔹 Hyundai’s cable harnesses are technically manufactured in China, but final assembly and packaging happen in South Korea—allowing the company to benefit from South Korea’s preferential trade agreements with the U.S.
🔹 Many firms shift parts of their supply chains to Vietnam, Thailand, or Malaysia—but beware, Trump has floated the idea of expanding tariffs to these regions (so the game of whack-a-mole continues).
🔹 Supplier Diversification: Switching suppliers to avoid regions hit by high tariffs. Gereffi et al. (2021) found that firms actively swap suppliers to circumvent trade restrictions. Spanish exporters neutralized tariff increases by substituting products from unaffected countries (Minondo, 2023a, 2023b).
🔹 Manufacturing Location Shifts: Instead of moving entire production lines, some businesses shift only critical portions of their supply chain. Saiz and Uribetxebarria (2012) showed that shifting assembly from China to Brazil significantly reduced tariff burdens.
📦 3. Leveraging “First-Sale” Pricing
A little-known court ruling from 1988 allows importers to pay tariffs based on the manufacturer’s price, not the higher retail price charged by middlemen. This tactic works especially well for brands that source from multiple suppliers before selling finished goods.
⏳ 4. Delaying Duties with Bonded Warehouses & Temporary Bonds
Cash flow is king. Companies are increasingly using:
🔹 Bonded warehouses, where goods can be stored tariff-free until sold.
🔹 Temporary import bonds, which defer duties on products set to be re-exported.
📊 5. Operational Tactics
Companies also adjust their logistics and operations to minimize tariff impacts:
🔹 Inventory Management: Research by Muris et al. (2023) found that a 30% tariff leads to a 65% reduction in inventory-sales ratios. Firms adjust stock levels to weather tariff changes.
🔹 Order Timing Optimization: Johnson and Haug (2021) found that businesses pre-order goods before new tariffs take effect, reducing exposure.
🚀 The Future: Tariff Loopholes & Government Crackdowns
The ingenuity of businesses to navigate tariffs is undeniable—but so is the government’s ability to tighten the noose. In 2008, U.S. customs attempted to scrap the “first-sale” rule, only for trade lawyers to fight back successfully. If Trump (or any future president) clamps down on existing workarounds, expect businesses to find new and creative solutions.
At the end of the day, demand always wins. As one trade lawyer put it, “People want stuff, and they’ll get it one way or another.”
💬 What’s your strategy for navigating tariffs? Are you playing defense or getting ahead of the game? Let’s discuss.
Peggy Van de Plassche is a seasoned advisor with over 20 years of experience in financial services, healthcare, and technology. She specializes in guiding boards and C-suite executives through transformational change, leveraging technology and capital allocation to drive growth and innovation. A founding board member of Invest in Canada, Peggy also brings unique expertise in navigating complex issues and fostering public-private partnerships—key elements in shaping the Future of Business. Her skill set includes strategic leadership, capital allocation, transaction advisory, technology integration, and governance. Notable clients include BMO, CI Financial, HOOPP, OMERS, GreenShield Canada, Nicola Wealth, and Power Financial. For more information, visit peggyvandeplassche.com.
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