‘Tariff engineering’ is in vogue as businesses attempt to skirt duties

Would you be bothered if your coat was officially classified as a windbreaker or a raincoat, or your shoes as slippers? Businesses do care though, as classifications under a preferred category can help them pay lower tariff rates.

As U.S. President Donald Trump imposes duties on friends and foes alike, manufacturers are increasingly rethinking the classification of their products and resorting to “tariff engineering” to incur lower duties, several customs lawyers, supply chain and shipping experts told CNBC.

Tariff engineering — a practice that precedes Trump — involves changing an item’s materials, altering its dimensions or compositions so that the finished products can be justified to fit in a different “harmonized system code,” legal experts said.

Although most new tariffs added during Trump’s second term are broad-based, the U.S. government has carved out exemptions for certain products, leaving doors open for companies to benefit through tariff engineering, trade lawyers pointed out.

After Trump unveiled sweeping “reciprocal” tariffs in April, several overseas manufacturers moved to bundle steel and aluminum elements into their final products to qualify a lower 25% duty under Section 232, said David Forgue, a partner at Chicago law firm Barnes, Richardson & Colburn.

Things, however, changed quickly in June as Trump jacked up tariffs on all steel, aluminum products and derivatives to 50%, except those from the U.K. “Now that the duties are reversed, we’re now seeing companies remove those elements and ship them separately again,” Forgue said.

There is “nothing inherently illegal or even untoward about leveraging strategic design choices that result in creating different products that are subject to different tariff classification and duty rates,” said John Foote, a customs lawyer at Kelley Drye & Warren in Washington D.C. “Tariff engineering is one of the few things you can do to try to get it right and reduce your duty liability.”

There are over 5,000 different product classification codes that U.S. customs authority uses while assessing tariffs. These tariff classifications were determined through decades of negotiations between governments and industry bodies, often varying by product category.

Winnebago Industries, an American manufacturer of motorhomes, or recreational vehicle, said in its quarterly earnings call in March that it planned to “work with outside experts to develop and implement effective [tariff] mitigation strategies, including tariff engineering and deferrals.”

Aneel Salman, chair of economic security at Islamabad Policy Research Institute, described the act as “clever art of outsmarting customs,” as importers and manufacturers tweak products “just enough” to qualify for lower duties.

“I was talking to somebody recently and they were showing me their lapel pin,” said Kelley Drye & Warren’s Foote. The pin, tacked onto the person’s suit, featured a “festive design” with pieces of cubic zirconia at the back, Foote said.

The inclusion of cubic zirconia helped the company that manufactures those pins avert a 14% tariff, as the item no longer fell under festive article category but got classified as jewelry, Foote subsequently learnt.

“The value attributable to the cubic zirconia was significant enough [and] it was a relatively easy manufacturing change,” Foote said.

The practice of tariff engineering can be traced back to 1882, when an importer coated sugar with molasses to avoid higher duties imposed on lighter-colored sugar. In a landmark ruling, the Supreme Court ruled the act perfectly legal: “so long as the goods are truly invoiced and freely and honestly exposed to the officers of customs for their examination, no fraud is committed.”

Since then, companies, big and small, have continued to play chess with the U.S. tariff classification system, with several household names successfully implementing strategic product tweaks to save on tariff costs.

For instance, Columbia Sportswear has never been shy about its use of tariff engineering. “I have a whole team of people that work together with designers and developers and merchandisers and with customs, and to ensure that during the design process that we’re considering the impact of tariffs,” Jeff Tooze, the company’s vice president of global customs and trade, told