Tariff Engineering: Turning Trade Compliance Into A Profit Strategy (Podcast)

Tariff Engineering Is a Team Sport

Indeed, tariff engineering can do more than lower a company’s duty bill. On Simply Trade, hosts Lalo Solorzano and Andy Shiles talk with Hal Berman and John Petitte of Trade Insight. Together, they explain how tariff engineering works best as a cross-functional strategy.

Look Beyond the Duty Rate

Still, a lower tariff classification alone doesn’t guarantee savings. In fact, Hal and John explain that engineering, sourcing, procurement, finance, and operations may all hold pieces of the puzzle. As a result, real savings depend on manufacturing costs, supplier agreements, logistics, tax, and compliance requirements working together.

Start Small, Build a Repeatable Process

Rather than reviewing every SKU at once, the episode suggests starting with high-duty products. Even so, the exercise still builds a framework for future analysis. Over time, tariff considerations can then move earlier into product and supply-chain design.

AI as a Tool, Not a Replacement

Similarly, AI can help trade professionals research classifications and analyze larger product libraries. However, Hal and John stress that human judgment and transparent reasoning still matter most. Ultimately, the goal is better tools for trained professionals, not a replacement for compliance expertise.

Ready to Go Deeper?

So, building a cross-functional tariff strategy takes the right foundation. GTC’s Duty Optimization Bundle covers the tools and frameworks teams need to evaluate real savings opportunities.

Transcript

Machine Operated

Andy Shiles (00:06)
I think is definitely a a collaborative effort. Somebody in a compliance arena has to look at the overall benefit of the

like a holistic for the company for what they’re gonna try and do in this project here. but it’s it’s one of those things too that is definitely gonna have to cross organizations here when we get in. I’m kind of teeing this up for us for our listeners.

Lalo (00:37)
Yeah, exactly. It’s

just I I I g I guess before we get started, we we do have Hal and John from Trade Insight on our show. they they’ve been on it for s several times before. But it’s starting to get fun to invite folks like them back because we always bring or take we always ask for the challenge of coming on their show but not necessarily pitching. You know, like, hey, don’t don’t

Let’s let’s not make it an infomercial or a webinar about about your product. And so it’s it’s getting fun to try try and find like topics that we can talk about that are really clear, good takeaways and and they always come up with a good one. So so I’m always happy to have

Andy Shiles (01:22)
This is a good one.

Lalo (01:24)
So always happy to have And and but yeah, so so now you know we have we do have Hal and John from Trade Insight. they do have a product that

mainly the the main product that they that they started off with when I first met at ICPA about a year and a half, couple of years ago was tr tariff classification. It’s evolved a little, of course, you know, and maybe we can have them explain a little bit of how it’s evolved, but we’ll get to the topic as well, you know, and the main topic of discussion. But I don’t know if you have anything else, Andy, before we bring in.

Andy Shiles (02:00)
Well,

I was just going on and Hal, John, welcome to the show. I had gone

John Petitte (02:04)
Thank you.

Andy Shiles (02:05)
on and and looked at your website and I’m going, man, you guys, the number of countries you cover is phenomenal. And you’re working on more all the time there, but welcome to the show and won’t you give folks a nutshell recap of what your company does.

John Petitte (02:27)
Yeah, so at our core, we’re a technology company, right? So we’re we value creating technology that does things really, really well. And so you mentioned, hey, we’re we’re very comprehensive in terms of global coverage, right? That’s because when we thought of the concept of classification, we thought we want to try and solve classification for professionals out there.

And that means having extensive coverage, right? And our goal is to be complete in everything that we do. So whether it’s free trade agreements or classification or export classification, you know, whatever that is, our target is to produce something that in in you know, in our views, in our view is perfect, right? We know perfection is impossible, but that’s the

That’s the goal, right? That’s the vision. That’s the, you know, the shining city up on the hill that that we’re aiming for. So as a technology company, that’s what we embody and that’s what we’re aiming for.

Hal (03:38)
On the compliance side, the goal is want to dispel this myth that AI is here to replace people. We want to build a tool that when trained compliance professionals use it, they feel more confident and it’s more clear how they got to the ultimate decision for a classification. So that you can rely on it for years for audit when government comes knocking saying

How did you get to chapter 85? How did you get to this subheading? Why is it this with a clear rationale? And that’s what we focus on. This as complete as possible, as John is saying, and as clear as possible, so that you’re not w sitting there wondering, well, the AI told me it’s this, but I can’t follow step by step to verify it. And being focused on tools usable by trade professionals.

are not coders, first and foremost.

Andy Shiles (04:41)
Well, and and to that point, it’s it’s like having the tools. I I I think the stigma of AI replacing people hopefully is being diminished because people are realizing, well, you have to learn it. I mean, you said something when a compliance person is properly trained and utilizing it, it is a very effective tool to help them become much more productive.

And let’s face it, I mean, most companies that hit at least the medium size and and above, there are so many parts that they just can’t get to to classify ahead of time. And then when the shipment arrives at the port, it’s stuck because they’re trying to, you know, get through this. AI is helping in so many avenues in that. And so is it’s allowing

shall we say the compliance folks to become much more productive and effective. But with that, the due diligence, you know, how did you come up with this classification and and and whatnot? You know, it’s not gonna be solve everything and and do everything for you, but at least get you closer to the final answer to say, yeah, okay, I’ve got this, and here’s the rationale. Here’s a few more nuances. And guess what?

It may come back with the same classification or may say, Well, you here’s your options, but the beauty of it is it’s a tool. So speaking

Hal (06:13)
And exactly what you said sorry, Low.

Andy Shiles (06:16)
Go ahead. No, go ahead.

Lalo (06:16)
No, I was gonna say and and

above above all, I mean, also C BP has said, you know, that that certain functions within trade need to have a human in the loop. I mean, it needs to have you cannot go to ten digit classification solely on AI. You know, like like it has to be there’s gotta be a human there, you know. So I mean that that’s just a small example, yeah. Pardon me?

Hal (06:38)
And you can’t Yeah,

you can’t take it and put it directly onto a seventy-five one. Right? Our systems does not fill out custom declarations. It’s a research tool to allow people to say, okay, this is the type of product. Let’s figure out what this should be and get support for that. But we’re not building shipments, we’re not doing shipment classifications and we’re not really

Doing the entry processing or anything like that. we’re just doing the research. But what Andy was saying about parts and being overwhelmed with parts goes so perfectly into

Andy Shiles (07:19)
Mm-hmm.

Hal (07:20)
duty optimization and tariff engineering, particularly if you’re including under the umbrella of tariff engineering free trade agreement usage, because you need to know the HS classification.

For every component in that bill of material in order to do tariff shift analysis. So if your department of classifiers is so overwhelmed with the final goods that they never get to classify the bill of material components, you’re never going to be able to do robust FTA analysis. And you’re not going to be able to really have sourcing involved. You can’t say, hey,

Let’s figure out all the ways to find this in brass instead of stainless steel because there’s a three percent duty differential if you don’t have the capacity to scale up from three thousand classifications a year to forty thousand classifications a year.

Andy Shiles (08:22)
Well, and and with that, the folks, if you House kinda alluded to this, is that we’re gonna be talking about tariff engineering. What’s it mean?

What that means is that if you can design a product and maybe change a couple of components, you might get to change the harmonized tariff number, which would change the duty rates. Or you might look at it and say, you know.

The widget is what it is, but if we instead of sourcing it in China or somewhere like that, if we sourced it out of Ireland or Italy or South America somewhere, the duty rate dramatically drops. So there’s things like that that you can look at, but it takes a collaborative effort. So this is one of those Hal that as we were talking.

Talk a little bit more what’s involved about tariff engineering, because I want to go then after we get through that for our listeners, then how do we pull this together? I’ve got a couple of ideas on that I want to throw at you. But first off, what is tariff engineering? What’s all involved in that?

Hal (09:35)
Yeah, so one important thing is we call it tariff engineering, but it’s really goes beyond just the duty rate. That’s one of the variables in a full equation that is evaluated for a return on investment for a product. And what we’re saying is what are the changes we can make to the products manufacturing, the products sourcing, or the products

final post-importation assembly that will impact the duty or other costs in a way that will ultimately save the company money. So you want to reduce your total landed duty paid cost by taking advantage of special programs, finding a just lower base duty rate because you’re importing it as two separate pieces and then assembling it.

using any of those methods all falls under the umbrella of tariff engineering. And great example, the classic example is by putting felt on the bottom of the a shoe, Converse was able to change from the sneaker category to, I believe it was slipper, household slippers, and pay much less duty. Another great example is

When there were three one tariffs and exclusions, a smart glasses manufacturer realized if they put instead of empty frames, bifocal lenses in, they would move from chapter 85 to chapter 90, where there is an exclusion from 301 on prescription glasses. They brought them in here, and then they were able to pop out the bifocal lenses because.

for ultimate sale, replace them with whatever lens the ultimate consumer wanted. That was a tariff engineering to avoid and minimize their three one exposure.

Andy Shiles (11:48)
To your point and folks, as we’re looking at this, this is this works, this whole engineering process. I mean, we’re talking about, you know, maybe focusing right now on, you know, your import process, but this works both ways. So let’s say that you’ve got a product that you’re selling, I don’t know, in South Africa or in in Europe or, you know, sending it to, you know, Asia somewhere in in, you know, different countries.

You can do a tariff engineering to see if this will work to say, can you, by shipping it over, if you d made a change or something, maybe it would qualify for a lower duty rate or something else or preferential treatment in those countries as well. So import export, this is wide range. So in doing that, in looking at trying to figure out all these different things.

Who all would be involved in trying to come up with this?

Hal (12:52)
Yeah.

And that’s one of the things that makes duty optimization always so attractive and so difficult to execute is identifying what you pay the most duty on. It’s not that hard. Every company that’s sophisticated with the compliance department can run a report and say, these are the five SKUs we pay the most duty on. The next step is saying, okay.

What are the bills of material on these? What’s the manufacturing process look like? Let’s map that out, which will involve conversations with sourcing, procurement, product design to get a thousand-foot view of the whole supply chain for those products, and then saying what at each step, where is their duty impact? Because if you’re building something, say you’re building frames in Japan.

from s raw material extracted in China. Well you’re paying duty when it’s going from China to Japan and then when the frames go to the US, you’re paying again.

Looking at both of those as opportunities to reduce duty are being done separately by two different compliance professionals, potentially. So you’ve got all of the people helping those professionals map the supply chain. You’ve got compliance professionals that understand how the tariff is impacted at each border crossing. And then you have the sourcing, accounting, finance people saying.

Is it even possible to make these changes? Do we have long-term supplier contracts? Do we have investments in plant property equipment or or tool and dyes that are owned by a manufacturer in China makes it impossible to move to Mexico to use USMCA? All of that information requires multiple stakeholders to be engaged and part of the conversation.

Which is why it’s never as simple as well, we’ll bring in this outside consultant that’s an expert in who’s saved this other company millions of dollars in duty and they’ll just do it again for us in a totally different industry.

John Petitte (15:13)
So I was this is a this is a very important point in the entire process, right? You can do tariff engineering after you already have a product and are shipping it around the planet. You can do it during the engineering phase slash like prior to the engineering phase, right? ideally you want to do it during and with the engineers. And I’ll give you a concrete example as to why. I was chatting with an engineer

Earlier this week about tariff engineering. And his immediate response to me was, Why would anybody do this? Literally, right? He’s like, Are you sure

Andy Shiles (15:53)
Mm-hmm.

John Petitte (15:53)
people actually want to do this? Like, because I don’t think that there’s any value here. And

Andy Shiles (16:00)
Yeah, why

go through all the things? It’s like, look, I’ve we’ve designed this product. I’ve spent all this time and these hours and everything else. And it is what it is. And now you’re coming in and going, can you change

John Petitte (16:05)
Yes. Yes. Yeah, he that’s right. That’s right.

Andy Shiles (16:14)
this? Can you look at it? You know, how can you change it? Well, wait a minute, what do you mean how can I change it?

John Petitte (16:18)
Yes, some

literal quotes from the conversation are the engineers already made all the right decisions.

Switching suppliers is extremely expensive, so expensive that you should never do it. Like these are literal quotes from the conversations. Okay.

Andy Shiles (16:35)
Mm-hmm, mm-hmm.

John Petitte (16:37)
So getting the stakeholders and the conversation eventually ended up with me asking questions such as well, what if you could actually save money by switching out copper wiring and whatever you designed to fiber optic?

He was like, well, yeah, I guess that would make sense, right? It’s like, yeah, because there’s more than just, you know, the cost of your supplier and the cost of the supplies, right? Things can be taxed in vastly different ways that change the actual tools that the engineers think they have at their disposal. It’s like, I’m gonna use copper wire because it’s more expensive than fiber optic. Well, you know, not if the duty is set up in a specific way. Your fiber optic could be cheaper.

Right. So you have to get or you really want to get those departments and those individuals set up early on with the right mindset, or the hurdles that you will have to overcome are going to be vastly different and more challenging. Now it doesn’t mean that you can’t go back and say, hey, look, the world has changed. We need to reevaluate our supply chain, right? Because tariffs are different now.

That’s a that’s a great idea, and there’s no way around that, right? But those stakeholders, identifying them early, identifying their thought processes is absolutely critical.

Andy Shiles (18:07)
Well, and and you you’re hitting on something that again, it’s a stakeholder in here, you know, the the initial design. you know, usually the marketing and the sales folks, they don’t really care where it’s coming from and what the components are. They’re like, What are the features that I can market? And the sales folks are going saying what are the benefits that I can sell if they buy our product? Okay, fine. But they’re still

an an elements to some of that. But there again, you’ve got I think John you were saying, you know, designing even the supply chain, the logistics of it, the the transportation, the routes. no how you said that. I I guess

Hal (18:49)
The spinal assembly.

Andy Shiles (18:50)
John and John, I I guess the other question was, I love how you were looking at it where, well, let me ask this question.

What if you change from copper to fiber optic? All of a sudden, you know, your your engineer st stops with the defensive posture and they look at and they re-evaluate. So you’re giving them new information to consider, right? So that’s one of the things that is a beauty and is it’s in the approach. And I want to lead up to something here in a second, but Hal, I’m sorry, I I cut you off there.

Hal (19:26)
No, it’s okay. a great example, two quick things. Current events right now, the the new executive order regarding drone manufacturing, tons of companies are scrambling because they set up if you are building your drone part factory in the UK, the punitive parts additional parts duties ten percent compared to you know, this huge increase in places like India. So if you’re an Indian manufacturer.

Move or if you’re an importer buying from India, moving your sourcing to the UK, you’re saving a huge amount. So tons of companies are all scrambling to do that right now. Another great example on tariff engineering is if you look at a product like motorized shades, the shades are classified based on the material of the shades, which is fabric. Even though the fabric is very low value.

Of what you’re paying, the duty rate on those fabrics is very high. The chief value is cost and the inputs for those electronic units that are radio controlled and have motors are very high. If you import them totally separately and then in your US facility combine them together, you pay no duty on the motor, because it’s unconditionally duty free, and you pay a minuscule amount of duty on the fabric.

Your total duty savings compared to bringing them in as a unit now are offs, you compare that versus the labor costs of combining them in your US facility. If it’s positive, you make the change. If it’s not, you keep paying the duty. That exercise takes time. And again,

Andy Shiles (21:16)
Yeah, yeah.

Hal (21:16)
all those stakeholders we looked at and building up to the future is a

few button clicks and connecting the right data sources, you can review your entire SKU library and say, Hey, these are the only questions that we need answered to see if this is viable at all. Instead of starting this path, pulling resources, getting eighty five percent of the way there before somebody says, this is totally impossible. We’re locked into a six year agreement with this supplier.

Andy Shiles (21:49)
Well, and here’s something though, in it it’s quite an extensive process, but here here’s the thing now, and to our listeners, it’s like where do you go? What’s what’s the approach? What I see right now is a phenomenal opportunity for utilizing the a a quality improvement process or process improvement process or or whatever you call it.

and I will say some of my background, of course, you know, over thirty years at FedEx, I was ingrained in, you know, quality equals pro productivity or Q equals P was the initial thing. then the quality improvement process and then quality driven management, all those different things. You have Six Sigma, all these different programs. But here’s the key is if you’re in leadership.

Is forming a committee. We call them a quality action team or quat, or a group of people, whatever you call it, but it’s gotta have somebody that says, Hey, I want you to take and identify our top product and have a a team formed, and you’ve got

Let’s say sixty days, maybe thirty days, you can tighten it up a little bit. Whatever so much time, you know, to to limited amount of time to come together, look at that specific product, and come back with a recommendation to say, are there opportunities to lower the import duty that we’re paying in this country or that country or wherever it is?

So that’s the concept in that. What do you think about that, Hal?

Hal (23:43)
Yeah, so I think it’s the way that it should be done to learn the pain points that exist in an organization that are preventing comprehensive incremental changes that move these types of processes earlier and earlier in the product lifecycle, right? By doing those action committees, picking

particular items, it makes the process of going through it and evaluating if duty optimization is right for that product. Even if you can’t find a way to save duty, you’ve now have a template for it. Here’s the questions that have to be asked. Here’s the people that you know safeguard the information. Here’s the key personnel that we need to involve in future things. And that

serves as the template the next time you do it to start doing it earlier, faster, more efficiently, to do your selection better. So you say, hey, we know everything in 8517. There’s no opportunities here. We’re never going to make a change. Let’s not even review them. Next up on the list, we have a bunch of 8536, you know, protecting whatever it is. Let’s look at a couple of 8536. Let’s look at

And you can s build off that learning experience into your next iteration and continually approving that process until the engineers are leading that and it becomes part of the initial product design of Hey, how do we design around using USMCA? How do we design around using a chapter, you know, special provision, wherever you’re bringing it in?

That’s kind of the key. If you don’t know who holds the information, if you don’t know what that process looks like, because you haven’t gone through the type of action that you’re talking about, you’re going to just have a lot of frustrated people who are asking questions without buying of like, why am I spending time filling out this questionnaire? Right.

Andy Shiles (26:05)
You

know what? That that right there though is why I’m saying this has got to be sponsored by a high enough level. And I’m talking the C suite. It could be the CFO. It could be the chief operating officer, or it could be just the CEO themselves, or president, whatever, but it’s gotta be sponsored high enough. But what are the departments that we’re talking? We’ve already talked about engineering and compliance. in my personal opinion, yeah,

Hal (26:30)
Finance has got to be involved.

Andy Shiles (26:32)
finance has got to be in my but I I well

Compliance, IT, and and and engineering, finance, who else? operations, supply chain. I mean, it’s got it customer service, even. It’s like, okay, if you change this, whatever. What about some of the exceptions when a product fails? Who’s involved in that kind of process of not only listening to the customers?

But then what is done with that on returns and things? And let’s look to see, you know, are is the quality of the product going down. You have to look at it that way. Your

I I think the lead of that type of program should be from the compliance area. However, I also think that the process improvement or quality improvement folks need to help facilitate those meetings so that it’s not a burden so heavily on somebody. But you how I think again you set this to where probably the first project may take like sixty days.

Because

Hal (27:42)
Mm-hmm.

Andy Shiles (27:42)
you’re going through and d and and drafting, you know, what are the questions? I mean, John, you were saying, hey, let me think about this. You need an advisor to kind of help go along to say, have you considered this or that? And then let the group talk about it. I’ve done some of these things before.

not specifically to tariff engineering, but more towards even streamlining the supply chain. And it is amazing when you can throw out a few questions and you got a team from different organizations and all of a sudden it it it takes on a a a life of its own and they have conversations. And when you hit them with a certain challenge, I mean part of the scenario here is you’re gonna invest the time

Here’s a limited amount of time to say, you know, you you pull these people together. I want people from these departments. You let your department heads, you know, pick whether they want to be department heads involved themselves or a somebody within the group. And the objective is a recommendation on how you can potentially reduce, you know, X number of dollars out of the per unit cost or something.

You gotta come out with a specific thing. Now, with that, they can go forward and like you said, they may not come back and go, you know what, we’ve got the best process. But the other side of it is you’re talking about finance more specifically. you’ve got, you know, your your accounting areas, but I would say also the tax area. You because there may be opportunities where, hey, we reduce the import duty.

But now our tax liability may go up. Are there ways to reduce our tax liability in certain ways too? So that all that comes into together.

Hal (29:39)
Yeah, and one of the things that’s really important what you’re saying, the your roadmap is excellent because the buy-in that you’re generating from coming from the top down and working saying, Hey, let’s get lots of departments, leadership involved in structuring this is the way for it to be successful, even if you don’t find duty savings. Because

What I’ve never seen work in my career is when you have two licensed brokers on a team that normally just do, you know, operational import work, they do classifications, they keep stuff moving and they are great at that job. And then somebody comes in who has did a really successful USMCA qualification at their old company and they say, Hey, let’s review this.

And let’s start qualifying a bunch of items for USMCA. And they put it on their compliance team that’s never done a project like this. And the expectation is figure out who owns all of this. And suddenly people are now having to go to people they’ve never spoken to, explain it, get by in themselves. Those projects, no matter how well intentioned, and no matter how well.

the authority has been delegated will never be as successful as when whole multi division groups are assembled to work together with buy-in that goes straight from the top down to the bottom. That’s where you get people thinking, wow, I have an opportunity

Andy Shiles (31:22)
Yeah.

Hal (31:23)
to contribute to a multi-million dollar a year duty savings and we’re gonna come together as a team and make that happen.

instead of somebody who said, my God, I have to somehow figure out a way to just make this happen and I also have to keep stuff moving across the border.

John Petitte (31:42)
Y you know, if if you’re a CFO, there’s one question that you have to ask yourself that will guide you on all of this, and that question is what is the value to me if I can go to the board and with written proof and documentation say with peace of mind that we have optimized our tariff and tax strategy?

That that’s the only question as a CFO that you really need to answer. And then that that will guide what you do from there.

Andy Shiles (32:18)
Well, and can you imagine from a CFO’s perspective going to the senior leadership and the board of directors, if you’re have one?

And be able to say that. It’s like we’ve got an initiative over here, we’ve optimized, or we’re in the process of optimizing our duty

John Petitte (32:38)
Mm-hmm.

Andy Shiles (32:39)
optimization or and and and processes and sourcing and all those kinds of wonderful things. Man, it it really puts you in a strong footing. And that’s one of those things too, that this isn’t just a one shot deal. You’re gonna have to have this almost an ongoing situation.

Hal (32:55)
And and part of the like goal of doing these types of exercises is not just finding the duty savings now, but the building that ongoing process and changing the way of looking at the economics of your imported products from what is my unit cost for into what is my total cost, including compliance and

duties and manufacturing and what are the costs I’m carrying, not switching, all of these factors that are impacted by your your supply chain setup and your logistics strategy that people don’t even think about. And you know, things like, hey, what’s the impact on seasonal swings of freight? Because my supplier only ships every X amount of days, which means every you know

Chinese New Year, we get slammed with the freight increases on ocean freight. Those types of things are not duty related, but impact your unit cost. And once you start looking at beyond the what’s the price I paid on the invoice into these other things, you have all of these opportunities to unlock savings and to really optimize your total landed duty paid costs.

Andy Shiles (34:25)
Guys, thank you so much, Hal and John for being on. It’s again, we want to hear some more stories whenever, especially as people are utilizing your your systems, the next go around, I’d love to hear this is what they were able to accomplish or some of the testimonials from from your customers and and and how have they been using your systems in a way that it’s

improve their inh productivity and not just replace their jobs.

John Petitte (34:56)
Absolutely. We’ve got some things that we’re working to make public right now.

Hal (35:00)
Yeah. And thank you so much for having us on. It’s always a a real privilege.

John Petitte (35:05)
Thank you.

Andy Shiles (35:06)
Folks, like us, share us. We’re expanding our listenership around the world and it is very, very much appreciated. Check us out on LinkedIn and you know, reach out to us and connect with us and it would be great. So with all that, everybody have a great day.