Video discussion: How Fashion Companies Design Products To Avoid Tariffs

Background: Tariff engineering refers to the practice of designing a product (e.g., clothing) to be classified at a lower tariff rate. For example, “women’s or girls’ blouses, shirts, and shirt-blouses of man-made fibers” imported from China can get taxed as high as 26.9%. However, the same blouse added a pocket or two below the waist would instead be classified as a different product and subject to only a 16.0% tariff rate.

US fashion companies like Columbia Sportswear leveraged tariff engineering to mitigate the negative impact of the US-China tariff war. Nevertheless, using tariff engineering requires substantial financial and human resources, which often were beyond the affordability of small and medium-sized fashion companies.

Discussion questions:

What do you think about tariff and tariff engineering based on the video and our lectures?

Author: Sheng Lu

Professor @ University of Delaware

19 thoughts on “Video discussion: How Fashion Companies Design Products To Avoid Tariffs”

  1. Tariff engineering is basically a loophole that companies made to avoid paying a higher rates. I think that this is beneficial for companies who don’t want to pay higher prices. I think this also benefits consumers because they will be saving money because the companies are altering their products to pay less. For example, converse wants to be identified as a slipper to avoid paying the 48% import charge so they made the sole of the shoe to have a felt cover to pay less for imports. Customers don’t even realize that their converse are made different and it helps the company with revenue because they price their shoes less which is attractive to consumers.

    1. great thought! BTW, do you think policymakers should close this “loophole” or discourage “tariff engineering”? why or why not?

  2. Tariff engineering is extremely interesting to me. I think companies are extremely sneaky with trying to make certain items fit into categories they would never be perceived as falling into, simply to avoid tariffs. The video features that since Nike bought Converse, they wish the classic Chuck Taylor to be classified as a slipper rather than a sneaker to avoid paying a steep tariff. I do not think this is right. Nike is a company that is worth millions of dollars and obviously has the ability and means to pay tariffs. However, they also have the materials and knowledge of what allows a product to fall into a certain category, allowing their product to meet the minimum qualifications to be classified as something it is clearly not. This is not fair at all to small companies that do not have the means to have their goods classified as something they are not in order to not pay as high of a tariff. This falsifying method used by well known companies is only hurting smaller businesses. I do not believe that this should be allowed. A consumer has the ability to easily identify what category a good should be placed into. This should apply to tariffs as well. Adding a fuzzy bottom to a sneaker does not make it a slipper, nor does the sneaker even closely resemble a slipper.

      1. I think it is a reasonable argument for fashion companies to say they are trying to save money for US consumers through tariff engineering. However, I do feel as though it is exploiting the business as a whole in a sense as other companies may not know they have the ability to do such. As both a consumer and a fashion student, I had no idea about tariff engineering prior to reading this post. I believe an argument that could support the use of this tactic would be since all of the prices are currently going up in the supply chain, this could be a solution in companies saving consumers a few extra bucks.

  3. I think that Tariff Engineering is super interesting. Many companies can get away with paying a cheaper price as well as consumers purchasing products for less since companies are making these alterations. The whole scenario with Converse adding felt to the bottom of their shoes so they classify them as slippers to pay a lighter tariff seems unjust to me. The company itself is extremely successful and definitely has the resources to deal with higher tariffs so I don’t think this is fair to smaller companies who tend to struggle more and get hurt easier. I believe that tariff engineering is a tricky scenario in general since it is so easy to make a small adjustment to a garment and then pay a smaller tariff price. It almost doesn’t balance out to me and it could end up giving consumers the wrong idea when they go to purchase.

  4. Tariff engineering is a way to bend the rules for large brands so they can avoid higher tariffs and keep their prices low for consumers. Brands must be careful when tariff engineering because while it is legal there are rules that must be followed. For example a brand can not lie about what the product is. I do not think tariff engineering is necessarily a bad thing because technically they are not breaking the law, they are using creativity to solve a problem. Brands who have the resources can use this as a way to improve their brand and there is nothing wrong with that. However, I do think that the rules should leave some room for small and medium size brands who do not have the resources to pull off tariff engineering. Bigger brands are able to use the benefits to keep prices low while smaller brands are having to pay high tariffs and raise their prices. This pulls consumers in the direction of the large brands instead of the small brands leading to the bigger brands just getting bigger.

  5. This article surrounding tariff engineering was very interesting and informative! Fashion companies have been partaking in loopholes with taxes to avoid paying extra fees. I think this is a great idea for brands who export/import on a large scale. Brands must be sure to abide by all of the rules to avoid fees, but I think if the brand is being truthful there is no issue. However, I can see US policymakers not being happy about this loophole and may look to expand tax regulations to cover more areas.

  6. Seeing this video on tariff engineering made me realize how fickle laws on tariffs can be. Companies solely base decisions around money. If they can find a way to argue that their product is something that it isn’t to save money, they will do it. This video showed me that tariffs will not always be 100% effective if brands can change a small thing about their product to classify it as something else. I am sure we all think of Converse as “shoes,” but does adding felt in the sole really make it a slipper? Clearly these tariffs put into place are not being put to proper use if famous brands are finding their way around them. It makes apparel tariffs become more of a game about what you can get away with. However, this might not necessarily be a bad thing for brands who need to source in areas that come with tariffs. Tariff engineering may be the only way to make smaller brands stay profitable.

  7. I found this video extremely interesting. I have never really heard about Tariff engineering before. Tariff engineering is more or less a way to cheat the system. Companies do this in order to make sure they don’t have to pay a higher tariff rate. I think that this is just a sneaky way for companies to pay less money and do not want to deal with the higher prices. The one positive is it does make products cheaper for the consumer but again I do not think it is really the right thing. Think about all the smaller companies who do not have the resources for tariff engineering it is not fair for them. This makes smaller compies lose business and the big companies are already pulling in large amounts of revenue.

  8. I’ve never heard of tariff engineering so I think this video is extremely interesting and contains a lot of good information on what happens during the design and engineering process of apparel. Tariff engineering is basically a way to avoid rules in order to classify apparel under a different category, which can decrease tariff prices. Although I believe there is huge leeway to avoid a specific classification and “change” the classification overall to decrease tariffs, I can see how it’s extremely beneficial to companies. With lower tariff prices, companies can keep their usual pricing on products and not raise prices which may lead to a decrease in sales, benefitting not only the company but the consumers too. I think it’s very interesting that adding something as small as a fuzzy sole to a shoe changes the category from a sneaker to a slipper when it is clearly still a sneaker.

  9. I found the video really interesting. This is the first fashion class where I heard of the term “fashion engineering”. I never looked into the rules of tariffs and assumed the rules were really simple. I understand how companies are trying to find loopholes around their products to avoid paying higher tariffs. This is also beneficial to the consumer because the price won’t be as high because of the lower tariffs. While some people not agree with bigger companies cheating the system, I don’t see it as a huge issue. There are loopholes to almost everything and it’s just a matter of fact if someone can be successful with it. I don’t see a difference with converse changing the bottom of the shoe. Without seeing this video, I would have never even noticed something was different.

  10. Tariff Engineering is very interesting and not something I have thought about in the past. I thought converse had the fuzzy on the bottom just for uniqueness and a brand image that set them apart, not for tariff reasons. There is alot that goes into tariff engineering and alot of things that need to be thought about when trying to go around crafting an item to get around a higher tariff. For my internship, I often have to send out a lot of samples to the factories, I use DHL to create these labels. When creating them I have to very specifically go through the options and select the item and the fabric content and where is was made, i.e. women’s clothing–> shirts & blouses –> blouse made of synthetic fibers, then pick the country it was made in. It is a very painstaking process sometimes because it can easily get messed up.

  11. This video was extremely thought provoking! I honestly never thought anything about Converse’s fuzzy soles, but now I know why–tariff engineering! This concept of tariff engineering reminds me of when we learned about the short supply list. Although they are a little bit different of concepts, the bottom line is the same–these brands are trying to save money wherever and however they can. It is interesting all of these loopholes within the industry. I wonder if the court of international trade will every crack down more strictly on this?

  12. I believe tariff engineering is just another creative way of thinking when it comes to the business management side of the fashion industry. As long as companies are following customs rules and remaining loyal to customer satisfaction, there is really no harm in this process. If there were negative affects such as unemployment increases and lowered profit margins, I could see how tariff engineering would not be ideal, however, the ripple effect that is discussed in the video is just a map of benefits hitting everyone involved. Manufacturers still get business, designers still have creativity with minor adjustments, transportation cost is still paid, and customers are happy with lower prices which is the main idea for profits as others have also mentioned above. The employment opportunities within tariff engineering in the coming years are tremendous based on the niche skills of designers, tariff specialists that work on executive collaborations with customs, and factory jobs that stay in demand for mass production as well as detailed products.

  13. Tariff engineering is something I was unfamiliar with until this course. I believe that this process is why companies put so much thought into every detail of their products and their classifications are due to price. The slightest change in detail on a product can change the tariff price. Many companies and designers tweak their products purposely so they can have a different classification. An example is the video that I found very interesting was the converse sneakers. It can be classified as a slipper rather than a sneaker all because of the bottom texture. I personally would not think to consider the shoe a slipper due to its looks but it was still classified as a slipper. It is crazy to me how long tariff engineering has been around and the different ways people have tried to “cheat the system” in order to obtain a lower tariff price. It is shocking that I had not known about this previously due to how long it has been around.

  14. I find tariff engineering to be very interesting. I had never considered or heard of this before. I would have never considered a Converse “sneaker” to be considered a “slipper”. I do not feel as if the tariff loophole is fair. I understand how this loophole can be very enticing to companies and retailers. However, I do not like that companies would manipulate their design just to pay less. I do not think it is a bad thing if you are still staying true to your brand’s mission and producing your desired product, for example adding a small pocket. I did not like the Converse example because a Converse has never been a slipper, so the company trying to pass their sneaker as one seems phony from the company.

  15. What do you think about tariff and tariff engineering based on the video and our lectures?
    This video was extremely interesting to me because I have never heard of the term “tariff engineering” and it was interesting to learn about what that entails. I think it is smart of companies to change certain words they use to describe an item to have to pay a lower tariff, sometimes these tariffs are just too expensive but with this small change it can help bring in more companies and retailers and overall generate more money for the economy. I don’t find this to be unethical, because if one company stopped doing other companies would continue and they would just end up being the ones who lose in that situation. This helps companies and retailers to not inflate their prices or lose out on good quality products and continue to provide good merchandise to their consumers.

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