Bypassed

Good design enhances the user experience, helps sell products, allows for more price flexibility…and reduces a company’s tax bill? Let me introduce you to the mind-blowing practice of tariff engineering. 

Simply, products are made to include certain components or materials to change their import classification. The most famous example is Converse’s Chuck Taylors. The iconic sneakers feature a fuzzy felt on over half the sole. Why? It has nothing to do with function or aesthetics but allows for the footwear to be classed as slippers, not shoes. Instead of a 37.5% tax rate on US imports, the slipper tariff is a meagre 3%.

The auto-industry are pioneers of tariff engineering. In the 1960s, America introduced the “chicken tax”. To combat that tax France and Germany placed on exported chickens, the US introduced a 25% tax on all imported trucks. That rule still exists today but the big car companies have engineered their way out of it. One of Ford’s vans, the Transit Connect, is imported into the States with a row of rear seats. They are classified as passenger vehicles as they pass the border, paying just 2.5%, but Ford then strips the seats out and repurposes the vehicles as delivery vans. The scheme worked for years until June when the legitimacy of the operation was thrown into question by the courts. An unfavourable ruling could mean Ford faces US$1.3b in retroactive taxes. 

Finally, popular outdoor-wear company Columbia features pockets in the most absurd places in the name of avoiding tariffs. Regular synthetic women’s shirts and blouses are imported with a 26.9% tariff. Garments with pockets below the waist, for whatever reason, are reclassified into a new category that is only taxed at 16%.