How Companies Design Products To Avoid Tariffs - Cheddar Explains

Is a Snuggie a blanket or a sweatshirt? Now this may seem like a silly question, but you really should think twice about your answer. See, that question has not only been answered, but even debated in front of The Court of International Trade. Why? Well, how a product is classified can mean either big savings or big costs for the company that sells it. In this episode we explain how companies engineer their products to avoid tariffs.


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[asantaraliner]

In Indonesia, a car with 10 seats are taxed cheaper compared with a 7 seats. Because of that, Ford Indonesia imported the Ford Everest from Thailand in a 10 seater format and converted them into 7 seater in Indonesia between 2007 and 2014. This loophole avoided the 40% tax and got the 10% tax instead.

[coyotegreen]

I worked as an international shipper/receiver at a guitar company. They had a line of guitar effects pedals that were mostly made in China. By mostly I mean, the whole thing was made there. Only the actual pedal was not mounted on the electronics part, but it was otherwise assembled. That one bolt assembly allowed the company to save a ton on tariffs, but also allowed them to proclaim the pedals as being Made In America. International trade is a trip.

[jasongold]

A central theme of X-men comics is, at the end of the day, they are human, just like anyone else. Marvel successfully argued in court that they are not human. Placing them in the non human toy category, cutting the terif in half.

[gurito]

The snuggie looks like a cloak, is worn like a cloak, and can be used as a cloak. And in my humble opinion, i believe that it should be classified as a cloak.

[AnonymousFreakYT]

My favorite ridiculous tariff engineering item is the Ford Transit van - a VERY common "small delivery van" here in the United States.

And while Ford is an American company - the Transit van isn't built in America. And I don't mean "The United States of America", I mean "The American continents." It is built in Turkey, in Europe.

The United States has a *VERY* high tariff on cargo vans being imported from Europe. But a _much_ lower tariff on passenger vans. Only Ford Transit sized passenger vans aren't popular in the United States. But that same size cargo van? *SUPER* popular.

So what is Ford to do? Start up an assembly line for it within the NAFTA trade zone? Of course not, that would cost too much money. Make the van cost more by paying the cargo van tariff? Of course not!

So they do the obviously logical thing - they build the vans as passenger vans, import them, then rip out all the "passenger" bits, slap on solid metal "windows", and call it a passenger van. But now they have hundreds of thousands of "small passenger van" seats and windows lying around spare. Sure, I'm sure they keep some as spares for the few Transit vans that are actually sold as passenger vans, but there would still be way too many. So they send them back to Turkey.

Even stranger? Because of the combination of tariff and shipping costs - it is cost-prohibitive to send them back intact.

SO THEY SHRED THE SEATS AND SHATTER THE GLASS AND SEND BACK THE READY-FOR-RECYCLING MATERIALS!

Yep, they build seats and glass - solely to destroy it and send it back to be recycled into new seats and glass. Ford sells over 100, 000 Transits a year in the USA. That is a mind-blowing amount of fabric, metal, and glass. Also, the vehicles have to pass US safety standards to be imported, so they can't just slap in "wouldn't even qualify as a seat to most people" seat. It has to be a real US-passenger-worthy rear seat. (I can't find any specific references to how many seats it has to have when being imported - and obviously even the cargo variants keep the front seats, so I'm assuming it is imported with just a standard second-row three-passenger-bench rear seat., not a full three rows, or bucket seats or anything fancy. Just what you'd find in a "commuter van".

[veggiestew]

It would be nice if modern goods were engineered for quality sometimes, but I guess that's off the table.

[brahnt]

7:06 "So they dont have to lay off workers" Lol, more like so they can increase shareholdervalue

[DIOsNotDead]

"Have you ever had the grand-standing debate of wether or not a hotdog is a sandwich? Spoiler alert: it's not."

_multiple "A Hot Dog Is A Sandwich" podcast fans are typing..._

[Retrochick]

“You can’t lie about the product……. Unless you’re converse trying to pass off your shoes as slippers…..”

[matthewbanta]

I was a bit confused when I watched this because I was sure that Chucks didn't have a fuzzy sole. Then I realized that it has probably been 20 years since the last time I bough Chucks. I like Chucks (or maybe we should say that I liked Chucks) but they only seem to last 6 months or so if you wear them all of the time. Come to think of it, maybe they really are slippers.

[ratm]

I'm pretty sure I remember hearing the PS3 allowed you to install your own operating system so it could be considered a computer instead of a gaming system for tax purposes in specific countries (EU I think)

[wafkt]

Years ago, during the height of the US/Canada softwood lumber dispute, I worked for a roof/floor truss manufacturer in Canada. We had arrangements with several truss manufacturers in the US. They would send us their cut sheets and we’d pre-cut all their lumber and ship the pieces to them. Apparently, if the lumber had square cut ends, it was “lumber” and charged the appropriate tariff, but if it had non-square cut ends, the pieces were classified as “parts” and charged a much lower tariff.

[ironsniper]

Converse website advertises and sells their shoes as "shoes" so how does the "iTs A sLiPpEr" argument work

[writinguy]

Ironically for a video about taxation from a company located in New York, starting with the statement that a hotdog wasn't a sandwich when it is considered such by the New York tax code.

[MrUnsuspiciousName]

You forgot the best example of a smoke detector being classified as an instrument

[namele]

"had a dispute, slapped on a tariff and forgot all about it"
1964 CHICKEN TAX
also, how the US missed out on a whole generation of cool light trucks

[bhzucker]

Best argument against tariffs I've ever seen. Imagine all the hours of human effort squandered by companies trying to get around tariffs, and governments trying to enforce them, all in an attempt to artificially "protect" certain special interests at the expense of the consumer.

[MountainHawkPYL]

In the early days of Scrabble, the tiles were manufactured outside the US. If they were delivered as sets, they were taxed as complete games, so they vowels were sent separately from the consonants to avoid the tariff.

[Jscribe]

Most consumers in a general sense are more brand conscious than tariff savvy, and that determines how much they are willing to pay for a product. The Columbia apparel example made me chuckle because it is one of the more expensive sport apparel brands on the market. I doubt they, and other upmarket brands, pass along much savings from their tariff costs.

[NovelNovelist]

I'd say an Apple Watch IS legitimately more of a telecommunications device than a watch. Because despite having "watch" in the name, telling time isn't really a central use. Converse are definitely slippers though...