In response to Trump's tariffs, American importers already have a "mature tax reduction plan"

American companies are leveraging a mature set of legal strategies to significantly reduce their tariff bills, with the “First Sale” rule being a particularly effective legal precedent. It is estimated that by 2025, importers will underpay approximately $45.7 billion in tariffs through this rule and other methods. This practice has prompted bipartisan efforts in Congress to introduce legislation to block it.

The “First Sale” rule is an valuation principle used by U.S. Customs. Under this rule, when goods are transferred multiple times through intermediaries before being sold in the U.S., importers can base their tariff calculations on the initial transaction price between the manufacturer and the first intermediary (not the final price at which the intermediary exports to the U.S.). This means importers can choose to declare the lowest initial transaction price to legally lower the tariff base and reduce tax burdens.

The Wall Street Journal reports that Republican Senator Bill Cassidy of Louisiana and Democratic Senator Sheldon Whitehouse of Rhode Island jointly proposed a bill in February to eliminate the application of the “First Sale” rule. White House trade advisor Peter Navarro publicly supports this, pointing out that Washington law firms are exploiting this loophole to weaken the actual effectiveness of Trump’s tariff policies.

White House spokesperson Kush Desai warned:

“The Trump administration places great importance on the integrity of the president’s tariff policies. Foreign exporters should think twice before attempting to undermine the U.S. tariff system.”

From a market perspective, these avoidance tactics partly explain why inflation has not surged as expected despite significant tariff increases. Data shows that in 2025, the prices of imported durable goods rose only 1.3% for the year, far below most economists’ earlier forecasts.

How the “First Sale” Rule Works

The “First Sale” rule originated from legal precedents established in the 1980s. Its core logic allows importers to use the earliest transaction price in the supply chain as the basis for tariff valuation, rather than the actual amount paid to intermediaries.

For example, if a manufacturer sells a sofa for $200, and the trader resells it to a U.S. retailer for $300, with a 50% tariff rate, the traditional declaration would require the importer to pay $150 in tariffs. However, if the “First Sale” rule is invoked, declaring the initial $200 transaction value results in only $100 in tariffs, saving one-third.

International trade lawyer and Dorsey & Whitney partner Dave Townsend said:

“If tariffs cannot be avoided, the only way to lower the tax burden is to adjust the declared value to some extent.”

Another common practice is “unbundling,” where costs such as insurance and transportation—usually not included in the tariff base—are separated from the product’s manufacturing cost, further reducing the taxable amount.

Significant Avoidance, Lower-than-Expected Inflation

The practical effects of these strategies are reflected in macro data. The Penn Wharton Budget Model estimates that in 2025, importers using pre-stocking and the “First Sale” rule and other methods will underpay about $45.7 billion in tariffs.

Yale Budget Lab’s analysis shows that from January to November 2025, the prices of imported durable goods increased only 1.3% year-over-year, well below the widespread expectations of economists. Meanwhile, overall inflation has also slowed.

Previously, the “First Sale” rule was rarely used when tariffs were low due to the cumbersome documentation required. As tariffs surged, podcasts and webinars quickly popularized this strategy, and lawyers say it has become quite common in the industry.

Operational Barriers and Compliance Risks

Although the “First Sale” rule is legally permissible, practical implementation faces multiple obstacles.

Customs officials remain highly alert to importers who suddenly declare significantly lower values, wary of potential fraud. For small and medium-sized enterprises, the paperwork and legal costs involved often deter them. Additionally, applying the “First Sale” valuation requires proof that the goods were clearly destined for the U.S. market at the time of the initial transaction, a strict evidentiary requirement.

Meanwhile, middlemen from Asian factories are often reluctant to disclose true manufacturing costs. However, lawyers note that as more U.S. buyers demand supply chain transparency, traders who refuse to cooperate risk losing orders, and attitudes are gradually changing.

Sandler, Travis & Rosenberg, a pioneering international trade law firm from the 1980s that first developed this strategy, employs former customs officials to review documents and assess risks. Partner Mark Segrist stated:

“Our goal is to establish a clear, complete chain of documentation that not only holds up on paper but also withstands substantive scrutiny.”

Congressional Legislation Pressure and Industry Backlash

Legislative pressure continues to mount. The bill jointly proposed by Senators Cassidy and Whitehouse, if passed, would directly block the “First Sale” legal tax-saving route. The bill has received public backing from White House trade advisor Peter Navarro.

In response, U.S. exporters and importers associations oppose the legislation, arguing that higher tariffs paid by importers would ultimately be passed on to consumers. The association emphasized:

“The current “First Sale” system has undergone rigorous review and has a well-established structure and enforcement mechanism.”

Whether this bill advances will largely determine if companies can continue relying on this strategy to hedge against tariff pressures and will directly impact the practical enforcement of Trump’s tariff policies.

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