US businesses are finding loophole workarounds for Trump tariffs, and it’s totally legal

American businesses are turning to a little-known but legal workaround buried in US customs law to “evade Trump tariffs, according to a Monday CNBC insight. Known as the “first sale rule,” the decades-old regulation is helping importers significantly reduce the cost burden of tariffs by basing duty calculations on the initial sale price of goods, a fraction of the final import cost.

Per the US Customs and Border Protection, the 1988-established rule enables American companies to declare the customs value of imported goods using the price at which they were originally sold by the manufacturer, often overseas, instead of the higher price paid after passing through one or more intermediaries.

Tax loophole for reducing prices is lawful

A Chinese factory may sell a t-shirt to a Hong Kong vendor for $5. That vendor resells the shirt to a US retailer for $10, who then markets it to consumers for $40. Under the first sale rule, the retailer can base the import duty on the initial $5 transaction, not the inflated $10 import price. This strips out the cost markup of intermediaries when calculating tariffs.

“What the rules allow you to do is use that initial sales price from the factory to the vendor to determine the final duty price,” said Brian Gleicher, a senior lawyer at Miller & Chevalier Chartered, speaking to CNBC.

Yet, for any sold product to qualify for the first rule, transactions must meet several requirements: there must be at least two sales involving unrelated parties, the product must be demonstrably destined for the US, and full documentation be provided, including evidence of the first sale price.

This forces US importers to extract sensitive pricing data from their vendors, something that can be difficult to secure. “If you’re an importer, you need to get that first sale price. You need to have the data,” Gleicher explained. “Vendors may not want to give that information.”

Rich Taylor, a corporate advisor in China who has consulted on the first sale rule since Trump’s first term, explained that for the rule to work, “there has to be a level of trust between all parties.” 

“You are keeping your customer. You’re showing them that you’re trying to give them every tool to reduce their cost,” Taylor said.

Corporations leaning on first trade rule

Several companies both in the US and overseas, including Italian luxury fashion house Moncler, have been using the strategy since Liberation day. During its April 16 earnings call, Moncler called it a “significant benefit” to the company’s cost structure. 

Luciano Santel, Moncler’s chief corporate and supply officer, told the public that the company’s industrial cost, the first sale price, is just half the intercompany price.

In the US, outdoor grill maker Traeger and manufacturing services provider Fictiv both mentioned using the first sale rule in recent earnings calls, describing it as a “supply chain mitigant that minimizes tariff and duty costs.”

Legal but politically fraught

The first sale rule is entirely legal under U.S. customs regulations, but it causes a rift with the Trump administration’s goals. President Trump is increasing tariff revenue to push American firms to bring manufacturing back to the US. 

If companies pay lower duties, it limits the financial sting tariffs are meant to impose. US Customs and Border Protection said it could not provide data on how many companies have been using the first sale rule.

Meanwhile, Trump has temporarily paused a set of tariff plans aimed at the European Union. In a post on his Truth Social network on Sunday, Trump announced the suspension of a planned 50% tariff hike on EU goods until July 9.