Editor’s Note: Yesterday (May 28, 2025), as reported by the Wall Street Journal, “the New York-based Court of International Trade ruled that [President Trump] overstepped his authority in invoking powers granted to the executive in an economic emergency to impose sweeping tariffs on all U.S. trade partners April 2.” The Trump administration will likely appeal the ruling, which may ultimately reach the Supreme Court. This is yet another example of the ongoing changes and uncertainty companies face with tariffs and trade regulations. The episode highlighted in today’s post was recorded earlier this month, before this latest development.
2025 has been a roller coaster for supply chain and global trade executives. It’s not just that new tariffs have been implemented on U.S. imports from virtually every country in the world, it’s that these tariffs keep changing, sometimes within days. This back-and-forth change is adding risk and complexity to what has always been a risky and complex business process. So, the question many supply chain executives are asking today is, “How can we navigate this global trade environment to mitigate the impact of tariffs?” That is the main question I asked Jackson Wood, Director of Industry Strategy, Global Trade Intelligence at Descartes Systems Group on a recent episode of Talking Logistics.
Mitigating the Impact of Tariffs
With the uncertainty and volatility of the current tariff environment, I asked Jackson what strategies companies can take to mitigate the risks and impacts to their business. He began by noting that the impact and strategies taken will vary considerably based on each company’s situation. Some smaller e-commerce companies or local manufacturers may be starting virtually from scratch while larger multinational companies may have some of these strategies already in place.
The first strategy Jackson mentions is tariff engineering whereby companies engineer their products for the most advantageous tariff classifications. The second is to leverage existing free trade agreements such as the U.S.-Mexico-Canada (USMCA) agreement or the many others that exist globally.
There are also Duty Drawback Programs, Foreign Trade Zones, and perhaps a lesser-known one, the First Sale Rule.
Tariff Engineering
So, what is tariff engineering and how can companies best use this strategy?
Jackson gives the example of a shirt imported to the U.S. The basic fabric may be woven in Bangladesh, but if they were to finish it there the tariffs may be prohibitive. If instead the fabric is sent to Vietnam where buttons are sewn on and then to Indonesia where the collar is added, the tariff impact may be much less. “Tariff engineering is a way to look at the inputs of a product being manufactured to see if there are ways to move these products at different stages of their manufacturing journey to lessen the impact of tariffs,” Jackson explains. “It’s using the knowledge of customs policies, HTS codes and your manufacturing infrastructure to mitigate the impact. This knowledge may be internal or outsourced to trade partners.”
Free Trade Agreements
With the new tariff policies, will companies still be able to leverage existing trade agreements such as USMCA? “Yes,” responds Jackson. “If the goods being imported are compliant with the agreement, they are not subject to the new tariffs. It’s important to note that what politicians say on TV may not be consistent with actual trade policy so it’s easy to get confused. However, there are very specific rules and actions that must be taken such as recordkeeping, clear instrumentation in your relations with vendors and the ability to answer questions from Customs and Border Protection (CPB) to prove compliance. There is a cost to this compliance and when tariffs were low, companies may not have invested in these capabilities. However, with new, much higher tariffs, companies may choose to make this investment.”
Duty Drawback Programs and Foreign Trade Zones
Jackson states that Duty Drawback Programs allow companies to petition CPB for tariff relief because the items or materials imported will either be quickly exported again or will be substantially changed in the manufacturing process. He notes this does not apply to all items. For example, steel and aluminum have been specifically excluded from this program.
Foreign Trade Zones (FTZ) are similar except that no duties are paid when the imported products are accepted into the FTZ because they are not deemed to have entered the commerce of the U.S. It gives companies flexibility because if the products are exported to other countries out of the FTZ, no tariffs are due, and if the products are shipped within the U.S., the tariffs are not paid until they leave the FTZ. Also, if the end product is manufactured within the FTZ before being shipped, the duties on the finished product may be less than those on the imported inputs.
First Sale Rule
The First Sale Rule is a strategy many companies may not be aware of. I asked Jackson to explain how it works, as well as to describe how companies should go about implementing this or any of the other strategies we discussed. I encourage you to watch the full episode for all of Jackson’s insights and advice. Then keep the conversation going with your own comments and questions.
