Ever wonder why a Santa costume uses Velcro instead of a zipper, or why popular sportswear suddenly has an extra pocket? It’s often a strategy to avoid import taxes.
With unpredictable tariff policies, some global manufacturers are dusting off a strategy many used during the Trump administration's first term. It's a practice known as "tariff engineering."
"Changing the product ever so slightly so that you kind of game the system," said Scott Laing, a clinical assistant professor of finance at the University at Buffalo.
Tariff engineering is a legal way of modifying a product that is imported or exported in a way that changes the technical classification to avoid import duties, Laing explained.
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The Santa suits with Velcro are considered "festive articles" and not clothing, which carry a higher tariff rate.
Companies like Converse have long utilized the Harmonized Tariff Schedule — the classification system for goods — to pay lower taxes on their imported products. Adding felt to the bottom of the shoe allows their most popular products to be classified as "slippers."
This practice has become increasingly normalized as businesses seek to stay competitive, according to Laing. Many of the tariffs introduced during Trump's first term were kept in place under the Biden administration.
"It's kind of incredible to fathom that every single item that gets sold, imported, exported has a unique code that is identified with it, and as such, it has a very specific tariff rate," Laing said.
Laing sees tariff engineering as a way not only to lower import taxes, but also to drive innovation. He cited luggage as an example whose manufacturers developed products using different materials that are still water-resistant but lack the hard covers that carry the higher rates.
The tariff mitigation strategy is also faster and cheaper relative to other mitigation strategies like changing aspects of the supply chain, experts told the Scripps News Group.
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For companies, it's good business. The objective of businesses is to maximize profits, and that objective hasn't changed, explained Dennis Hoffman, an economics professor at Arizona State University.
What has changed is the tariff policies.
"This is now going to be another diversion for our engineers. Now they're going to go off into tariff engineering as opposed to quality product development," said Hoffman.
It's another way tariffs hurt consumers, Hoffman explained. Without the tariff variable, businesses are more focused on the consumer and developing the best products.
The strategy, while legal, has its drawbacks and has led to unintended consequences. Ford Motor Company, for example, paid a $365 million settlement with the government in 2024 over allegedly misidentifying cargo vans sold between 2009 and 2013.
As for consumers, they're unlikely to know the behind-the-scenes maneuvering.
"Businesses are not going to put up their tariff of engineering flag," Hoffman said.
And while reclassifying a product for a lower import tax rate saves companies money, experts say it doesn't necessarily translate to savings for consumers. The costs associated with redesigns and tariffs along the supply chain still mean higher prices at checkout.
The seemingly arbitrary rules governing tariffs are the result of years of lobbying efforts and exemptions, creating a patchwork of regulations. According to both Laing and Hoffman, exemptions tend to be highly political, following the pendulum swing of administrations and policies for generations.
