Strengthening your supply chain one link at a time. 

Mitigating Tariffs Through Manufacturing, Part 2: How Companies Are Rethinking Supply Chains Around Trade Policy

A Product’s Journey: From Tooling to Transformation

Let us examine an example flow of a consumer goods product with the following tariff minimizing composition that would have otherwise been subjected to a cost-preclusive tariff if shipped directly from Asia. The sequence that follows illustrates how design, location, and compliance mechanisms work together to reduce landed cost.

• Plastic parts – made from company owned molds.
• Purchased parts – mix of global and local suppliers, some parts coming from Asia.
• Packaging materials – consumer facing, locally sourced near final assembly.
• Subassemblies – local or imported, depending on capability.
• Final assembly – Mexico.
• Market – for sale in the US only.

How the Worst-Case Tariff Was Avoided

By assembling components from multiple origins, adding functional value through skilled labor, and creating a finished consumer product with new characteristics, the company changes the product’s country of origin — from a tariffed one to a trade-friendly one. Supporting mechanisms like the TIB make that possible by enabling quality assurance and pre-production steps without triggering full U.S. duties.

Bringing It All Together: Aligning Trade Policy with Manufacturing Strategy

Our example product journey illustrates how a thoughtfully sequenced chain, from tool validation to final assembly, can reset a product’s country of origin, shifting it from a high-tariff classification to a duty-free path under trade agreements like USMCA. But mechanics are only part of the equation.

As trade conditions evolve, tariff-aware supply chains are not just about compliance. They are about achieving cost advantage, operational flexibility, and long-term viability.  The ability to meet cost targets and preserve margin depends on more than labor rates or material sources. It depends on designing a supply chain that aligns with trade policy, leverages the right mechanisms, and partners with manufacturers who can execute with precision.

Key practices that support resilient, tariff-aware supply chains include:

• Align sourcing decisions with trade policy
• Leverage programs like TIB and IMMEX with precision
• Coordinate legal, operational, and manufacturing capabilities

What drives success is the ability to coordinate across legal, operational, and commercial dimensions and to adapt as those conditions change. That is why companies today are looking not only at where things are made, but how global inputs are transformed into finished goods, and which capabilities, inside and outside the organization, will get them there.

At St. Onge, we have helped organizations evaluate what is possible and build the operational strategies to make it happen. For companies navigating the latest wave of trade realignment, it is not about chasing loopholes—it is about engineering supply chains that are resilient, flexible, and ready for what’s next.

—Bob Swidarski, St. Onge Company
 
 

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Glossary of Terms

Disclaimer: This glossary is intended as a general reference for commonly used terms in trade policy and supply chain strategy. It is not a substitute for legal or customs advice. For questions about classification, duty treatment, or compliance, please consult a licensed customs broker, trade attorney, or the relevant government authorities.

 Trade Programs & Regulations

• Harmonized Tariff Schedule of the United States (HTSUS): The U.S. International Trade Commission (USITC) publishes and maintains the HTSUS, which provides the applicable tariff rates and statistical categories for all merchandise imported into the United States. https://hts.usitc.gov/
• Country of Origin (COO): The country where a product is considered made for customs purposes. This designation affects duty rates, eligibility for trade agreements, and tariff exposure.
• Section 301 Tariffs: U.S. trade remedy tariffs used to combat unfair trade practices. These tariffs, historically ranging from 7.5% to 25% but potentially leading to higher effective rates when combined with other duties, are imposed and adjusted via Presidential Proclamation under the authority of Section 301 of the Trade Act of 1974.

These tariffs are subject to revision and may be temporarily reduced or expanded under Presidential authority. As of mid-2025, many exclusions have been extended through August 31, 2025.

For the most current rates and impacted goods, always consult official U.S. government sources such as the Federal Register, U.S. Customs and Border Protection (CBP) Cargo Systems Messaging Service (CSMS), and the United States Trade Representative (USTR) website.

• United States-Mexico-Canada Agreement (USMCA): A trade agreement replacing NAFTA that allows duty-free trade among the three countries if goods meet origin and value content rules.
• Rules of Origin (USMCA): Criteria that determines whether a product qualifies for duty-free treatment under USMCA, based on where materials and labor originate from.
• Regional Value Content (RVC): A rule under USMCA and other trade agreements that requires a minimum percentage of a product’s value to originate from within the member region (U.S., Mexico, or Canada) to qualify for duty-free treatment. It is one of the tools used to prove compliance with the agreement once substantial transformation or COO is determined.
• Tariff Shift Rule: A rule under trade agreements like USMCA requiring that a product’s tariff classification changes as a result of production in the region, helping determine origin eligibility.

Taxes & Duties

• VAT (Value-Added Tax): A 16%² consumption tax in Mexico applied to the CIF value of imported goods unless exempt under IMMEX. With some exceptions like an effective rate of 8% in certain regions achieved through a 50% tax credit.
• CIF (Cost + Insurance + Freight): The total value of goods for customs valuation purposes, forming the basis for VAT and duty calculations.
• Deferred VAT: A benefit under IMMEX allowing the temporary importation of goods without paying VAT upfront.

Import/Export & Customs Programs

• Temporary Importation Under Bond (TIB): A U.S. customs mechanism (HTSUS Subheading 9813.00) allowing goods to enter the U.S. without duty for a limited time and specific purposes (e.g., quality control), provided they are exported within a set period.
• IMMEX Program (Industria Manufacturera, Maquiladora y de Servicios de Exportación): A Mexican government initiative that allows temporary, duty- and VAT-free importation of materials and equipment used in export manufacturing. While widely used in electronics, automotive, and consumer goods sectors, eligibility for certain categories, such as textiles and apparel, is periodically reviewed and may be restricted based on trade policy or sector-specific regulations.
• Permanent Import: A standard customs entry process in Mexico that includes duty and VAT payment, typically used when imported items remain in the country indefinitely or transfer ownership.
• Proof of Export: Documentation required to confirm that a temporarily imported item (e.g., under TIB) has been exported, needed to avoid penalties or the bond converting to a duty liability.
• Duty Drawback: Related to TIB and temporary imports. It allows for the refund of duties on goods that are later exported.

Manufacturing & Assembly Terms

• Substantial Transformation: A manufacturing or assembly process that changes a product’s name, character, or use, resulting in a new Country of Origin for customs purposes. Often used to shift origin from a high-tariff country to a lower- or no-tariff country, this is a foundational concept in tariff mitigation.

Note: Substantial transformation is distinct from trade agreement criteria like Regional Value Content (RVC) or tariff shift rules, which determine eligibility for preferential treatment (e.g., under USMCA) after origin is established. They serve different purposes:

• Substantial transformation determines Country of Origin (COO) under general customs law (e.g., to avoid Section 301 tariffs).
• RVC and tariff shift rules are used to determine preferential treatment under agreements like USMCA once COO is determined.

• Pass-Through Assembly: Minimal processing or assembly that does not qualify as substantial transformation, often flagged by CBP.
• Tariff Engineering: The legal structuring of manufacturing or sourcing to change tariff classification or reduce duty liability.
• Bill of Materials (BOM): A detailed list of components and materials used in manufacturing, often required for customs compliance or rules of origin determination.

Support Roles & Tools

• Agente Aduanal (Customs Broker – Mexico): A licensed professional in Mexico responsible for managing import/export compliance, including IMMEX processing, customs declarations, and documentation with SAT (Mexico’s tax authority).
• Customs Broker: A licensed agent who handles customs entries, HTS classifications, and ensures compliance with import/export laws.
• Trade Compliance Consultant: A specialist who advises on strategic classification, supply chain structure, trade agreements, and customs documentation.
• Binding Ruling: A formal determination from CBP on HTS classification or origin, requested in advance for certainty and compliance.
• CROSS (CBP Rulings Online Search System): A public, searchable database of CBP’s past classification and origin rulings, useful for precedent and research. https://rulings.cbp.gov/