Tariffs, Taxes, and Freedom (Part 1): Small Biz vs. Big Tariffs and 7 Tactics to Protect Margins Now

Smart entrepreneurs don’t absorb costs; they adapt. Here’s how to shield your business before tariffs eat your profits.

Aug 29, 2025

Heads-up: Part 2 — The Investor’s Tariff Playbook — Sectors at Risk, Sectors with Upside — drops Sunday (Aug 31, 2025).

Tariffs just became a line item you can’t ignore. In April 2025, the U.S. imposed a baseline 10% “reciprocal” tariff, then layered higher country-specific rates for many partners. These were established via Executive Order 14257 and subsequent actions; consider them as the “gravity” for your cost of goods.

As of today (August 29, 2025), the de minimis exemption of $800 is suspended for all countries, resulting in the processing of millions of small parcels under complete duty/fees processing. If you rely on direct-to-consumer cross-border drop shipping, your cost model has just undergone a significant change—immediately.

The good news? You have levers. Use trade tools to cut, defer, or recover duties—then pair them with 2025 tax rules (including restored 100% bonus depreciation after Jan 19, 2025) to defend cash flow and keep your freedom to reinvest.

Craving deeper dives, real-world case studies, and founder-focused tax playbooks? Upgrade to Premium Newsletter and turn your next tax payment into strategic capital instead.

Why tariffs hit harder than you think (in 2025 math)

Tariffs cascade: duties → higher landed cost → margin compression. Empirical work on the 2018–19 waves found near-full pass-through of tariffs to U.S. import prices and consumer prices, with measurable welfare losses. 2025 Fed research again links this year’s tariff mix to core goods inflation. Translation: the default is you (or your customer) pay, unless you design around it.

Example. The importer buys $5,000,000 of components from a country at a combined rate of 35% (10% baseline + 25% action), resulting in $1,750,000 in duties before fees. If your gross margin was 30% ($1.5M), you’re underwater unless you change the playbook.

2025 landscape checkpoints (so you don’t get blindsided)

A baseline 10% tariff is in effect (most countries). Many partners face higher “reciprocal” rates; dates and rates have been tweaked since April. Know your country/rate on each SKU, not just “China vs. non-China.”
Section 301 China exclusions extended through Nov 29, 2025. If your inputs are on the exclusion list, you’ve got a countdown.
De minimis suspended (today): all low-value parcels become dutiable/assessable. E-commerce models must re-cost.
Merchandise Processing Fee (MPF) remains 0.3464% with $32.71 min / $634.62 max per entry—rising to $33.58 / $651.50 on Oct 1, 2025 (FY2026). FTZ weekly entry can cap this per week.
Tax offsets: Section 179 for 2025 = $1,250,000 (phase-out $3,130,000); 100% bonus depreciation is back for property acquired/placed in service after Jan 19, 2025 (per the One Big Beautiful Bill Act).

Business Bank Psychology. The Five-Bucket System That Fixed My Margins

Max Donovan

Aug 12

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The seven tactics

1. Supplier diversification & nearshoring (make geography your hedge)

Why it works: You’re not just chasing labor arbitrage—you’re chasing tariff arbitrage + logistics risk reduction. Mexico has overtaken China as a top U.S. partner; nearshoring offers USMCA rules and shorter cash cycles.

Move: Build a dual-source bill of materials (BOM): one USMCA-compliant, one “global.” Use “switchable” PO language to reroute volumes when tariff shocks hit.

Number check: Shift 40% of your $5M inputs (formerly 35%) to a 10%-only lane → duty drops by over $ 500,000 annually. (Assumes no 301-type action on the alternate lane.)

2. Tariff engineering (change the thing to change the tariff)

Why it works: Legally alter materials, specs, or assembly before import so your product classifies into a lower-duty HTSUS—or undergoes substantial transformation in a different country. Lock it in with a CBP binding ruling.

Move: If a subassembly triggers a high duty, reconfigure it into separate components classified under lower headings, then assemble it domestically as a final product. Do not “tweak after arrival”—that’s not tariff engineering.

Guardrails: “Substantial transformation” = new name, character, or use; superficial assembly won’t cut it. File rulings before changing production.

Number check: Redesign that pushes a 35% article into a 5% heading on 50% of the BOM → ~$750,000 duty reduction on $5M spend.

3. Negotiate tariff clauses into contracts (costs don’t have to be your problem)

Why it works: Price-adjustment / change-in-law clauses pin the trigger (e.g., “new tariff ≥ X%”) and pre-agree who pays. Add caps, review cadence, and documentation requirements.

Move: Amend master supply agreements: “If U.S. tariffs on [HTS____] increase by ≥5%, price adjusts by the net duty delta; buyer may audit customs entries.”

Number check: If your supplier bears the 10% baseline on $2M of inputs, that’s $200,000 preserved margin—with zero engineering or logistics changes.

4. Duty drawback (get money back on exports)

Why it works: Up to 99% of duties/fees refunded on re-exported or destroyed goods (TFTEA/Part 190). Works for direct and substitution drawback.

Move: If 40% of your tariffed inputs are exported, implement a substitution drawback. Build SKUs, BOM linkages, and export records to facilitate accurate claims processing.

Number check: On the $1,750,000 duty bill above, 40% exported × 99% refund ≈ $693,000 back. (Cash-flow lag applies.)

5. Leverage Foreign-Trade Zones (FTZs) (defer, reduce, and cap MPF weekly)

Why it works: Weekly entry consolidates dozens of entries into one for MPF cap purposes; an inverted tariff allows you to pay the finished goods rate if it’s lower than the component rate.

Move: For high-frequency importers, consider setting up an FTZ or partnering with an existing operator. If you routinely hit the MPF cap, weekly entry is pure savings.

Number check (MPF): 1,000 capped entries/year at $634.62 → $634,620. FTZ weekly entry (~52 caps) → ~$33,000. Savings ≈ $ 600,000/year (and the cap rises to $651.50 on October 1).

Number check (inverted tariff): If your finished product is 2.5% and parts average 7.5%, using FTZ production to enter at 2.5% on a $3M component load saves approximately $150,000. (FTZ Board production approval required.)

6. Strategic pre-buys (beat the calendar)

Why it works: Dates matter. You can import before a rate change or before an exclusion expires, and bank the inventory at the old duty rate. Also: MPF cap increases Oct 1—small, but real.

Move: If your item is on the 301 exclusion list through Nov 29, consider front-loading Q4 demand now—balance carrying costs vs. specific duty.

Number check: Avoiding a 25% 301 reversion on $1 million of parts saves $250,000—even after accounting for incremental warehouse costs.

7. Reframe pricing (bundle value, not just markup)

Why it works: Customers resist simple price hikes. Bundle services (set-up, warranty, support, training) under a new SKU with a differentiated value prop, so the tariffed hardware isn’t the only perceived “price.” Pair with tiered discounts for domestic/nearshored alternatives. (Behavioral pricing beats a flat +10%.)

Tax-Efficient Business Structures: A Roadmap to Higher Profits (Part 2)