A few months ago, the words “bonded warehouse” and “harmonized system codes” might not have been on the minds of many American business owners. Now they’re in a massive spotlight. After President Donald Trump slapped a whopping 145% minimum tariff on most goods coming from China, 25% tariffs on cars, auto parts, aluminum and steel and a 10% tariff on almost every country’s imports, US businesses are desperate for ways to lower their import costs. Two popular — and legal — strategies involve those bonded warehouses to defer tariffs and harmonized system codes to qualify for lower rates. ‘Tariff engineering’ There are over 5,000 different product classification codes that governments across the globe use when assessing tariffs. Consumers don’t care whether the imported coat they’re wearing was officially classified as a windbreaker or a raincoat. But for businesses, that distinction can be the difference between lower and higher tariff rates – and potentially turning a profit or not. And to qualify for the lower rate, all a manufacturer would have to do is tinker with the product’s materials, otherwise known as tariff engineering. For instance, Converse’s signature All Stars sneakers have a sole that contains felt as opposed to the fully rubber one traditionally seen in sneakers. That may have been a purposeful decision, since foreign-produced shoes with felt bottoms could be considered “house slippers” for the purpose of tariff codes. And house slippers have qualified for significantly lower tariff rates compared to other kinds of footwear in the past. (Nike, the parent company of Converse, didn’t respond to CNN’s request for comment. CNN could not determine the latest tariff rates for sneakers versus house slippers given their respective classification codes.) Columbia Sportswear has not been shy about its use of tariff engineering. “I have a whole team of people that work … with the designers and developers and merchandisers and with customs, actually, and to ensure that during the design process that we’re considering the impact of tariffs,” Jeff Tooze, the vice president of global customs and trade at Columbia Sportswear told Marketplace in 2019. Among its uses of tariff engineering: adding small zippered pockets below shirt waistlines to qualify for lower tariff rates, he said. Even in the current environment, with Trump’s efforts to target tariffs at China and specific sectors, there are still plenty of opportunities for businesses to tariff engineer products, said Erik Smithweiss, a partner at the law firm GDLSK, who specializes in trade compliance. While there’s little way out of the initial 20% tariff Trump levied on China earlier this year, there are some opportunities to avoid the additional 125% that came into effect last month. That’s because Trump has, in some cases, quietly exempted some products from those tariffs. “We are working with companies who say, ‘Gee, I really want to be on this list, look at my tariff codes,’” said Smithweiss. “If we think that there is something that can be modified on a product that will change it into one of these exempt codes, we’ll work with them on whether that is a reasonable position to take.” But just slapping a new code on a product isn’t enough; the product itself has to be different in some way. US Customs and Border Protection agents can examine goods closely, including, for instance, sending fabrics out to labs to see if they meet applicable requirements, Smithweiss told CNN. If it doesn’t, the importer can be subject to a penalty on top of the higher tariff. The name’s bond The bonded warehouse route takes the opposite approach. Rather than mess with a good’s contents or move production elsewhere, businesses can import products from across the world without paying any tariffs when they enter the US — as long as they remain locked up in a special customs-regulated warehouse. Businesses can keep goods in these warehouses for up to five years without paying a tariff. They only pay the current tariff rate when they take goods out of storage. It’s a bet that tariff rates will go down in the short or medium term. Jennifer Hartry, president of Howard Hartry, a customs broker that rents out bonded warehouses, told CNN’s Julia Vargas Jones that 95% of the inquiries she’s received are for goods coming from China. Hartry said her family-owned business based by the Port of Los Angeles experienced a stark slowdown in recent years, but, since Trump introduced a slew of aggressive new tariffs, business has been booming. There’s no limit to the monetary value of the goods stored in bonded warehouses — the only constraint is how much a business can fit in the space they’re renting. For example, Hartry said the value of her tenants’ goods ranges from $37,000 to half a million dollars. Those goods include lithium batteries, metal rods and electronics such as TVs and treadmills. Hartry said it’s not lost on her how much of a toll tariffs are taking on businesses. At the same time, she told CNN’s Vargas, “it’s saving our business, which we’re grateful for.
Businesses have found strange but legal ways to avoid Trump’s tariffs
TruthLens AI Suggested Headline:
"U.S. Businesses Utilize Bonded Warehouses and Tariff Engineering to Mitigate Tariff Impacts"
CNN
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TruthLens AI Summary
In response to the significant tariffs imposed by President Donald Trump on imports, U.S. businesses are increasingly adopting unconventional, yet legal, strategies to mitigate their costs. The introduction of a 145% minimum tariff on goods from China, alongside other substantial tariffs on various products, has led companies to explore methods such as utilizing bonded warehouses and manipulating harmonized system codes. Bonded warehouses allow businesses to store imported goods without paying tariffs for up to five years, enabling them to wait for potentially lower tariff rates before they withdraw products. This approach has seen a surge in interest, particularly for goods from China, as businesses look for ways to protect their bottom line amidst the rising costs of imports. Jennifer Hartry, a customs broker, noted that her business has flourished due to the increased inquiries for bonded storage, highlighting the changing landscape of trade compliance in the current tariff environment.
Another tactic gaining traction is 'tariff engineering,' where businesses adjust the specifications of their products to qualify for lower tariff classifications. With over 5,000 product classification codes, small modifications can lead to significant savings. For instance, Columbia Sportswear has implemented design changes, such as adding zippered pockets, to reduce tariff rates on their clothing. However, this process requires careful navigation, as U.S. Customs and Border Protection conducts thorough inspections to ensure compliance. Companies must ensure that any modifications are genuine and not merely superficial changes to evade tariffs, as penalties can be imposed for non-compliance. Trade experts suggest that while the immediate impact of tariffs remains challenging, there are still opportunities for companies to navigate the complexities of import regulations, particularly with Trump’s occasional exemptions on certain products. Overall, these strategies reflect a dynamic adjustment by U.S. businesses to the evolving trade landscape, as they seek to remain competitive despite substantial tariff pressures.
TruthLens AI Analysis
The article sheds light on the creative strategies some American businesses are employing to navigate the challenges posed by President Trump's tariffs on imports, particularly from China. With tariffs soaring to unprecedented levels, companies are seeking legal loopholes to reduce costs, leading to the emergence of concepts like "bonded warehouses" and "tariff engineering."
Understanding Tariff Engineering
The piece explains the concept of tariff engineering, where businesses modify their products to fit into different classification codes that carry lower tariffs. This practice illustrates the complexities of international trade regulations and how companies are willing to adapt to maintain competitiveness. By changing materials or design, companies like Converse have been able to classify their products in a way that minimizes tariff expenses, showcasing a strategic response to regulatory pressures.
Implications for the Market
The implications of such strategies extend beyond individual companies; they reflect broader trends in the market and can influence consumer prices. If businesses manage to reduce costs through tariff engineering, this could lead to lower prices for consumers. However, it also raises questions about the fairness of trade practices and the potential for abuse of the system. The article hints at potential backlash against companies perceived to be exploiting loopholes, which could spark discussions about trade policies and regulations.
Public Perception and Economic Impact
By highlighting these strategies, the article may aim to shape public perception regarding the effectiveness and fairness of current trade policies. It could foster a sentiment of skepticism toward businesses that are seen as manipulating tariff systems for profit, especially during a time when economic fairness is a prominent public concern. The focus on tariff engineering also emphasizes the ongoing impact of trade wars on the economy, keeping the issue alive in public discourse.
Connection to Broader Themes
In comparing this article to others in the field, there is a noticeable trend of emphasizing the consequences of tariffs on everyday business practices. This connection suggests a broader narrative about the challenges American businesses face due to shifting trade policies and how they adapt to survive. The article aligns with ongoing discussions about globalization, economic sovereignty, and the ethical implications of business strategies in a complex regulatory environment.
Community Reactions and Support
The article may resonate more with business communities that are directly affected by tariffs, such as manufacturers and importers. These groups might appreciate insights into how to navigate the complexities of tariffs effectively. Conversely, consumers and advocacy groups concerned about fair trade practices may view the described tactics with skepticism, potentially leading to calls for regulatory reform.
Market Influence and Stock Implications
From a market perspective, the strategies discussed could influence stock performance, particularly for companies heavily reliant on imports. If successful in lowering tariffs, firms like Nike and Columbia Sportswear may see improved profit margins, positively impacting their stock prices. Investors will likely keep a close eye on how these companies adapt to tariffs and manage costs in the current economic climate.
Geopolitical Context
The article touches on the broader geopolitical landscape, highlighting how tariffs are part of a larger strategy in trade relations between the U.S. and China. The ongoing tensions and tactics employed by businesses to circumvent tariffs reflect a significant aspect of global trade dynamics. As such, the topic remains relevant in discussions about international relations and economic policy.
AI Influence and Manipulation Potential
While the article is informative, it does not exhibit overt signs of manipulation. However, the framing of "tariff engineering" may evoke contentious debates regarding ethics in trade. Although it is unclear if AI was directly involved in crafting the article, the structured presentation of information suggests a methodical approach that AI models could assist with. Nonetheless, the language used remains within the bounds of typical journalistic reporting, without appearing overly biased or manipulative.
In conclusion, this article provides valuable insights into how businesses are navigating the complexities of tariffs while raising important questions about fairness and ethical practices in trade. The information contained is largely factual and reflects ongoing challenges within the business community, making it a reliable source for understanding current economic dynamics.