As concerns swirl over the impacts of steep new tariffs on U.S. companies and consumers, so too does talk about how certain businesses try to avoid them.
President Trump's long-threatened taxes on imports from China, Mexico and Canada took effect Tuesday, prompting retaliatory measures on American exports, roiling the stock market and fueling fears of an economic downturn.
On Wednesday, Trump granted automakers a one-month reprieve from the tariffs, underscoring the unpredictability — and potential wiggle room — in his administration's trade policy. On Thursday, he signed executive orders lifting tariffs on many Mexican and Canadian goods until April 2.
"I'm really interested to see how much of these threatened tariffs stick, and how many of our big industries will be able to get immediate reprieves like the auto industry has already done," says Mary Anne Madeira, an assistant professor of international relations at Lehigh University. "And I'm hopeful that industries will get a lot of big carveouts and exemptions in a way that will really reduce the potential pain."
Companies and industries have several primary methods to get around tariffs, from the expensive process of relocating production to the more creative approach of redesigning the products themselves.
The latter is called tariff engineering. And it explains — among other things — why Converse sneakers are made in part with fuzzy fabric.
While these strategies aren't all guaranteed to work this time around, they offer a glimpse at the behind-the-scenes maneuvering that companies have used to bring prices down in the past.
Method 1: Lobbying for exemptions
One strategy is to lobby the government for an exemption or reprieve, as the automakers did.
"The president is open to hearing about additional exemptions," White House press secretary Karoline Leavitt told reporters on Wednesday.
Companies or trade groups can theoretically ask the Office of the U.S. Trade Representative (USTR) for exemptions from duties through what are known as Section 301 requests.
Many U.S. firms did so in 2018 after Trump launched a major round of tariffs of up to 25% on Chinese imports. The USTR received requests for over 53,000 exclusions between 2018 and 2021, and granted 13% of them, according to a report by the U.S. Government Accountability Office.
The lack of transparency around those case-by-case decisions prompted some lawmakers to criticize what they saw as USTR's ability to "pick winners and losers," according to the Congressional Research Service.
A 2024 study found companies that made substantial investments in connections to Republicans before and during the first Trump administration were more likely to secure tariff exemptions, while the reverse was true of those who contributed to Democrats.
Method 2: Shifting sourcing and production
Companies could also try to change where they obtain their materials or assemble their products, though that's often easier said than done.
A consumer good is usually considered an import when it undergoes final assembly in another country, regardless of where the parts are from, Madeira says. So companies could at least theoretically shift the final step of the assembly process to the U.S.
At least one already has. NOBL Wheels, a Canadian manufacturer and supplier of bike wheels, announced in mid-February that it would open a new building operation and distribution center in Bellingham, Wash., to offer "faster, hassle-free shipping that's duty and tariff-free, with significantly shorter lead times."
"This is an example of exactly what Trump wants to happen here," Madeira says. "But obviously, this firm would have located assembly in the U.S. earlier than now if it was economically rational for that firm to do so, so you have to wonder if this is going to raise its costs in other areas."
Businesses could also consider shifting their sourcing from countries like Mexico and China to places like Vietnam, Malaysia and Thailand, third-party countries that are not yet a part of the emerging trade war.
Firms will have to weigh the cost of disrupting the supply chain against the cost of the new tariffs, Madeira says. And there's always a chance that the U.S. could hit those countries with tariffs down the road.
"It's sort of like Whac-A-Mole," says Douglas Irwin, an economics professor at Dartmouth University. "If you hit China with a tariff, then you start importing from Vietnam, and pretty soon Vietnam will get hit with a tariff and then you import from Cambodia, or something like that. So there's a limit to how much you can reshuffle where you're importing from."
Method 3: Reclassifying and redesigning products themselves
Some companies have turned to tariff engineering instead.
"In other words, companies try to say their article or their good is something that gets low tariff treatment relative to what it might actually be, in essence," Irwin explains. "So you're engineering your product to get into the lower tariff category."
Sometimes, that can entail relabeling a product as something else — or at least trying to.
Marvel successfully argued in court in 2003 that X-Men action figures are non-human toys (despite the premise of the franchise) rather than dolls, nearly halving their tax rate. As NPR's Planet Money has reported, Santa suits are more likely to be deemed duty-free "festive articles" if they have Velcro closures — and classified as pricier clothing if they have zippers.
Similar arguments have ensued over whether a Snuggie — the oversized fleece robes with sleeves and hoods — is a blanket or a garment, which would carry different duty rates. The U.S. Court of International Trade officially ruled it a blanket in 2017, meaning the company would only have to pay an 8.5% tariff compared to 14.9%.
In other cases, tariff engineering involves making changes to the product itself.
One example — discovered in 2015 and making the rounds again in recent weeks — is that Converse All Star sneakers have a layer of fuzzy felt on the bottom, allowing the shoe to be classified as a slipper. Slippers have a duty rate of 6%, compared to 20% for athletic shoes, according to the U.S. International Trade Commission.
Columbia Sportswear adds pockets below the waistline of certain women's shirts so that they are not technically classified as blouses, which brings the duty rate down from 26.9% to 16%, as Marketplace reported in 2019. The company refers to it as a "ChapStick pocket."
"We usually try to spin it into something that's actually functional," designer Becca Johnson told Marketplace.
Another example is the Ford Transit Connect, a small passenger minivan commonly used for bakery deliveries and construction crews. Irwin explains that the tariff on cars is 2.5%, compared to 25% for trucks — which incentivized Ford to characterize it as the former.
Ford was accused of importing the vans from Turkey with rows of seats in the back and claiming it as a passenger vehicle to pay the lower tax rate.
"And then as soon as that came in, what did they do?" Irwin says. "They ripped out the seats … and just put in a flatbed, and lo and behold it's a truck."
The U.S. government ended up suing Ford for allegedly misclassifying the vehicles from 2009 to 2013 to skirt the tax. The company agreed to a $365 million settlement in March 2024.
Tariff engineering is legal, as opposed to tax evasion. U.S. Customers and Border Protection agents are tasked with spot-checking products entering the country and making sure they are classified correctly.
"If customs accepts the reclassification or thing when it comes in, then you're never really going to hear about it," Irwin says.
Irwin says customs could flag products that don't appear to be what they are labeled, which could lead to a court case at the Court of International Trade, a federal body in New York. Theoretically, a competing business that is paying higher tariffs for the same product could also file a suit.
Tariff engineering doesn't apply to the new tariffs on Canada and Mexico, Irwin says, because the rates are flat across all products.
"If you have a tariff that's really high in one product and lower on a very similar product, that's when you can sort of arbitrage that difference," he says. "But if it's 25% regardless of whether it's a truck or a car or a blanket or a garment, you can't really game the system."
While companies can try to minimize the impact of tariffs, much of that burden is still likely to fall to individual shoppers.
"Businesses have to make all the adjustments," says Irwin. "We consumers just sort of see what's available when we get to the stores."
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