Tariff Engineering: Turning Headaches Into Competitive Advantage

On the product side, design modifications may change how your imports are classified under the Harmonized Tariff Schedule, potentially shifting them to lower-duty categories. Sometimes it's as simple as changing packaging—importing items in bulk rather than individual units, for instance. Other times it means material substitutions or importing semi-finished goods and completing them domestically.

For example: An industrial equipment OEM redesigned several components to reduce the steel content of their imported parts. In the past, the material savings alone were insufficient to justify the business case for the redesign. However, in June 2025 when Section 232 tariffs on steel were expanded, the business case was substantially amplified. In balance, the OEM saw their costs remain flat, when they would have faced a 40% increase had they not acted. In addition to neutralizing the tariffs, the material savings will yield benefits through numerous future periods.

Process changes involve rethinking how and where operations occur in your value chain. By resequencing assembly steps or adjusting which operations happen in which countries, you can influence the country of origin designation and possibly reduce tariffs. This might mean shifting final assembly, packaging or labeling to specific jurisdictions.

For example: A company specializing in highly engineered parts had historically relied on an offshore affiliate to provide refurbishing services on consumable components. The refurbishing could have been done domestically, but consolidating the refurbishing activities provided numerous operational and financial benefits. When the tariff landscape changed in April 2025 with the “Liberation Day” announcements, the economics of a U.S.-domestic operating model became much more attractive. As a result, the company redesigned its refurbishing services op model and have seen their margins improve while concurrently compressing lead times and improving customer service levels.

Place strategies leverage geography and trade frameworks. Options include relocating operations to countries with preferential trade treatment, using free trade zones or bonded warehouses to defer duties, or working with suppliers who have geographic flexibility to source from lower-tariff jurisdictions.

Manufacturers who deploy comprehensive strategies across all three dimensions routinely cut their tariff costs by up to 50%—savings that translate to roughly 8% on total import prices. That's substantial, and will contribute to meaningful competitive advantage.

Start With Quick Wins, Then Build Long-Term Capabilities

You don't need a complete supply chain overhaul to begin. Start by mapping your current tariff exposure across products and suppliers. Where are your biggest risks? Which products or components carry the highest-duty burden? How does that flow through to margins?

From there, look for immediate opportunities. Pricing adjustments, for instance, often deliver high returns with minimal complexity. Can you pass costs on to customers with low elasticity of demand? Are there material substitutions that require minimal redesign? If you invest the effort to understand your opportunities, numerous “quick wins” will certainly surface.

The key is matching strategies to your specific situation. A manufacturer of complex machinery will have different options than a consumer goods producer. Your product mix, supplier relationships, existing infrastructure, capital constraints and competitive dynamics all shape which tactics will serve you best.

Why the First Movers Will Win

Here's what keeps me up at night on behalf of manufacturers who are sitting on the sidelines: manufacturers on top of their game are already reconfiguring their supply chains and they will block you out. Suppliers with favorable tariff profiles are being courted by numerous manufacturers simultaneously. Production capacity in preferred regions is filling up. The companies moving quickly are locking up relationships and capacity that competitors will struggle to access later. You need to act now while it’s still an option.

This isn't just about avoiding tariffs—it's about building operational flexibility that becomes a durable competitive advantage. When the next policy shift comes (and it will), manufacturers with responsive, adaptive supply chains will adjust in weeks while competitors scramble for months.

Building this capability requires cross-functional expertise. Your engineering, supply chain, trade compliance and procurement teams need to work together under empowered leadership. Successful programs have a dedicated executive champion who can make decisions that benefit the whole organization, even when individual functions need to accept short-term trade-offs.

You also need continuous monitoring. The tariff landscape changes too quickly to set a strategy and walk away. Reserve the privilege to make better decisions as you get better information.

Making It Stick

Tariff engineering shouldn't be a one-time project. The manufacturers who will dominate their industries in five years are building this into their operating models—making it a core capability rather than a crisis response.

Start with pilots to test approaches before scaling them broadly. Track results carefully so you can demonstrate ROI and refine your strategies. Build change management disciplines so new approaches actually stick in daily operations.

Most importantly, accept that some investments that protect future flexibility may not show immediate returns. We're in a period of elevated trade uncertainty. The ability to adapt to policies that don't exist yet has real value, even if it's hard to quantify in a business case today.

The manufacturers who are treating this as a temporary disruption to ride out are making a costly mistake. The ones building adaptive capabilities now will be more resilient, responsive and profitable than their peers—not just next quarter, but for years to come.