Tariff Engineering and America’s Favorite Shoe

Beloved by 1960s basketball stars, weightlifters, skaters, and teenagers alike, Converse All-Stars have become an American staple. I love my Chuck Taylors (I have owned the same pair since seventh grade) and have worn the soles to bare treads.

All-Star fanatics may notice felt on the sole of their shoes along the outline, toe, and heel. While at first glance the fuzzy lining seems deliberately placed, in reality it serves no functional purpose. Converse (now owned by Nike) uses tariff engineering to import shoes at a lower cost. As of 2015, the tariff on imported shoes in the United States could reach as high as 37.5 percent, while a tax on imported slippers stayed at 3 percent to 12.5 percent. The felt lining on the bottom of the sneakers allows Converse to classify their product as slippers, so the company benefits from a much lower tariff rate.

According to Smithsonian, Marvel similarly manipulated their products to benefit from tariff laws. In terms of tariffs, a “doll” represents a human while a “toy” represents non-humans. The comic book company argued in court that its action figures met the criteria of “toys” rather than “dolls” in order to incur lower costs, although the idea that superheroes are not human remains questionable.

Jim Tankersley of the New York Times also cites Columbia Sportswear as a company that frequently uses tariff engineering. For example, a non-waterproofed jacket receives a tariff of 27.7 percent, while a water-resistant one lowers the rate to 7.1 percent. Columbia’s chief executive, Tim Boyle, “said in a recent interview that there was nothing the president could do to entice the company to make its products in the United States”. This poses the argument as to whether or not the lower prices from tariff engineering offset losses in domestic production. As more companies turn to imported goods, fewer look for domestically produced, higher cost materials.

Tariff engineering traces back to 1881. Sugar was taxed based on its grade and quality, which led an importer to color his sugar with molasses, lowering its grade. Customs chemically tested the sugar and determined it to be higher quality, but the Supreme Court ruled that since Congress had adopted a color test, not a chemical one, that the importer’s sugar qualified for a lower tax.

Several court cases define the current rules toward tariff engineering in the United States. U.S. v. Citroen stated that the imported goods must be classified “by an examination of the imported article itself, in the condition it is imported” and that “prescribed duty rate cannot be escaped by resort to disguise or artifice”. Similarly, Heartland By-Products v. U.S. emphasized that no “artificial steps in the manufacturing process” could qualify an imported good for a lower tariff rate. Customs requires that goods are not altered only to receive a lower tariff. Any steps in manufacturing must serve some purpose (as claimed by the manufacturer) towards the functionality of the good.

Tariff engineering permits the creative businesses in America to produce their goods for a lower cost, resulting in consumer benefit due to lower prices. As tariff engineering grows increasingly popular, consumers must weigh their preferences between domestically produced items and lower prices. Whether or not more companies will decide to follow Converse and Columbia’s lead is unknown, but tariff engineering remains a steadfast practice in American imported goods.