Navigating Tariff Increases: Strategies to Minimize Tariff Costs Under the Trump Administration

Donald Trump, in his 2024 campaign, talked about bringing back tariffs, proposing a universal 10% tax on all imports. He called it a way to “protect American jobs” and “level the playing field.” He even hinted at tougher measures, with tariffs as high as 60% to 100% for countries like China, saying, “We’re going to stop the rip-offs once and for all.”

While these policies might be meant to help local businesses, they also create challenges for companies relying on imports to make their products or export to other countries. Tariffs often mean higher costs, supply chain issues, and smaller profit margins.

If you’re in that position, even though Trump’s tariff plans aren’t fully clear yet, it’s a good idea to start preparing now so you aren’t caught off guard. Let’s take a look at some ways to reduce those costs and stay ahead of the game.

Tariff hikes can put a strain on businesses reliant on imports. Fortunately, there are strategic options to minimize the financial impact. Here’s how.

The strategy of tariff engineering involves redesigning or modifying products to classify them under a Harmonized Tariff Schedule (HTS) code with a lower tariff rate.

That said, it would be an evasion to simply re-classify the exact same good under a different HTSUS. The good must embody distinct physical changes or modifications that legitimately align with the new classification criteria.

For instance, a company importing a product with a high tariff rate could adjust its specifications—such as materials or assembly methods—to fall under a category with lower duties. Imagine a furniture manufacturer switching to a different type of wood to reduce the tariff rate on their chairs. This strategy requires careful consideration and it’s best to seek expert advice to ensure compliance.

If you import goods but later export them in the same or modified form, you may be eligible to reclaim up to 99% of the duties paid through the duty drawback program.

Managed by U.S. Customs and Border Protection (CBP), the drawback program allows businesses to reduce tariff costs significantly.

However, to take advantage of this program you must keep detailed documentation of imported goods and their subsequent export or destruction. You also have to submit the required forms and evidence to CBP to reclaim eligible duties. Failure to tender proofs makes you ineligible.

If paying tariffs upfront is disrupting your cash flow, then duty deferral might be an alternative. With this strategy you can delay tariff payments until goods are sold, exported, or moved into the domestic market by leveraging bonded warehouses or Foreign Trade Zones (FTZs).

Here’s how it works:

Bonded Warehouses: Goods can be stored in a bonded warehouse for up to 5 years without paying duties. Tariffs are only charged once the goods leave the warehouse for domestic sale.

Foreign Trade Zones (FTZs): FTZs offer even more flexibility, allowing foreign and domestic businesses to conduct manufacturing, assembly, or re-packaging within the zone without immediate tariff implications. Duties are only paid when the final goods enter U.S. commerce.

The benefits are clear especially for importers navigating tight margins or seasonal demand. Duty deferral allows for operations optimization therefore improving cash flow.

Another option to consider when tariffs on goods from certain countries become too burdensome is changing the product’s country of origin. Basically, you’re shifting manufacturing or assembly processes to countries with lower tariff rates.

For instance, to maintain a competitive pricing, businesses importing from China might consider relocating operations to Vietnam or Mexico to benefit from trade agreements like the United States-Mexico-Canada Agreement (USMCA).

Although the relocation investment can be steep, the long-term savings and reduced tariff burden often justify the effort, especially for industries heavily impacted. Due diligence must also be taken to ensure the new country of origin has a free-trade agreement with the United States before making this move.

While International Commercial Terms (Incoterms) are not laws, they outline the responsibilities of buyers and sellers in international trade, and can be a game-changer in reducing import costs.

Under the Delivered Duty Paid (DDP) Incoterm, the supplier assumes responsibility for duties, taxes, and customs clearance, effectively shifting the tariff burden away from the buyer.

By renegotiating contracts to include DDP terms, the seller acts as the importer of records and has abilities to simplify logistics, reduce administrative overhead which can reduce the tariff costs in the long term.

In a case where goods are sold multiple times before reaching the U.S., the importer can document and validate that using the first sale rule.

The first sale rule system allows importers to calculate duties based on the price paid to the manufacturer, rather than the price paid to intermediaries or distributors. This way duties are calculated on the lower first-sale price instead of the higher resale price.

That said, to qualify for the first sale program, CBP’s in its U.S. Customs and Border Protection’s guidelines states that:

The initial sale must be a bona fide sale for export to the United States.
Goods must be clearly destined for the U.S. at the time of that sale.

Though the process requires thorough documentation, including contracts, and invoices, the potential savings makes it an invaluable strategy for dealing with high tariffs.

We can’t say for certain what the new administration has planned, but it’s good to start planning now to protect your business. It’s equally important to do things the right way, as mistakes could result in costly fines which can be an additional burden.

Better still, find yourself a partner like International Supply Partners helping businesses like yours find effective ways to manage tariffs. Whether it’s reducing costs, optimizing your supply chain, or staying compliant with regulations, we’re here to support you every step of the way.

Reach out to us today and let’s work together to keep your business strong and competitive.