More brands turn to ‘tariff engineering’ to avoid higher import taxes
As tariffs drive up import costs, more brands are leaning on a legal tool to soften the blow: tariff engineering.
At its core, tariff engineering involves modifying or changing a product’s characteristics to classify it under a tariff classification that carries a lower duty rate or is not subject to additional special duties. This can include tweaks such as swapping materials, alternating dimensions or adding features. It can also entail relabeling a product as something else to incur lower duties. There are more than 5,000 product classification codes, which are used by over 200 countries when assessing tariffs — and small differences can mean big cost changes.
For example, duties may vary not just by product type but also by components or features: One category of jackets may incur a higher tariff because it includes zippers or non-waterproof fabric, while a nearly identical version without those features could face a lower rate. While the Trump administration has applied broad-based tariffs, including a 10% universal tariff on many countries, there’s a complex underlying system where rates can hinge on seemingly minor product details. Tariff engineering leverages these distinctions to legally reduce costs.
Interest and adoption around tariff engineering has risen as firms look for ways to reduce costs on imported goods, especially those from China, which carries some of the steepest tariffs. Mario Torrico, an attorney who advises U.S. and foreign manufacturers on various international trade regulatory matters, including imports and customs compliance, said client inquiries related to tariff engineering have increased “at least 50%” since the start of the year.
“It certainly comes up every few weeks. Could we modify our product? What would that look like? What is the process of doing so? What are the risk considerations that we should be aware of?” Torrico said. “Generally, companies are exploring all tariff mitigation strategies, and tariff engineering is part of that toolkit.”
A fresh wave of brand examples
Tariff engineering is nothing new. Historically, brands like Columbia Sportswear and Converse have leveraged tariff engineering. Columbia has designed shirts with small zippered pockets below the waistline to reduce duties, Marketplace reported in 2019. Converse’s All Star sneakers include felt in the sole, classifying them as slippers. Slippers incur a tax rate of 6%, compared to 20% for sneakers, according to the U.S. International Trade Commission.
Today, more companies are following suit. Walmart, for example, has publicly acknowledged working with suppliers to swap out materials like aluminum — subject to steep tariffs of 50% — for alternatives like fiberglass.
“Our merchants, sourcing team and suppliers are being creative,” Walmart’s CEO Doug McMillon said during a May earnings call. “It’s been impressive to watch our team identify opportunities and adjust.”
Cross-border startup Portless has seen some of its brands embrace the strategy, too. Founder Izzy Rosenzweig shared that one apparel client slashed duties by more than 15% by switching from synthetic blends to cotton in its hoodies, resulting in a $2 per unit cost reduction. He cited another example of a company that saved on garbage can imports by adding sensors that reclassified the bins from metal products to mechanical devices, incurring lower duties.
Beverage giant Coca-Cola has also hinted at tariff engineering in regard to its own manufacturing practices. In February, Coke’s Chairman and CEO, James Quincey, said that the company could shift some products sold in aluminum cans to plastic bottles in response to rising tariff costs.
“It’s a good example of how companies are using design choices to work within the rules,” said Patrick Penfield, professor of supply chain practice at Syracuse University.
In addition to modifying the product, tariff engineering may entail trying to have it classified differently.
For example, a consortium of wedding industry executives are meeting with government officials in Washington D.C., to seek an exemption from tariffs or reclassify wedding gowns as “one-time use” items, Women’s Wear Daily reported.
Tariff engineering is just one of several tactics brands are deploying to navigate the volatile trade environment. As Modern Retail previously reported, companies are moving manufacturing out of China — though often not back to the U.S. — to countries like Vietnam, India and Sri Lanka. Others are turning to bonded warehouses to defer tariff payments, betting on future rate changes before clearing goods through customs.
Risks and gray areas
While tariff engineering can provide significant cost savings, it’s not without risks. The tactic came under scrutiny when Ford imported vans with added rear seats to avoid a steep 25% duty on cargo vehicles — only to strip them out after import. In March 2024, Ford agreed to pay $365 million in fines for allegedly misclassifying the vehicles from 2009-2013.
“The sole purpose of the change is to evade higher tariff duties that may go beyond permissible tariff engineering,” Torrico said. “It is good practice to support any product change with thorough documentation of the product development and engineering decisions in the event Customs ever inquires about the modification.”
Not all companies may have the means to pursue tariff engineering. Rosenzweig told Modern Retail that the companies he works with are typically smaller and may not have the resources to adopt such strategies.
“If you’re a billion dollar business, you probably have a team that does this for a living,” he said. “Most of our brands are doing, let’s say, $5 million to $150 million of revenue. They’re so busy running the business, they don’t have the headscape for it.”
Torrico said that apparel and footwear companies may be better positioned to benefit from tariff engineering, since duty rates on those products often hinge on details like materials or features, such as zippers or waterproofing. Sectors where small design tweaks can shift classifications tend to have more options, he said.
Despite the complexities, more brands are turning to tariff engineering as a lever in controlling costs as Trump’s tariffs show no sign of easing.
“At the end of the day, it’s just math,” Penfield said. “You’ve just got to go through the math and figure out where the lowest cost opportunity is when you take into consideration materials, processes and labor, and now tariffs.”