Trump Tariffs: US Importers Rediscover Decades-Old ‘First Sale Rule’ To Soften Blow

U.S. businesses have resorted to a decades-old legislation called the “first sale rule” to negate the impact of President Donald Trump’s tariffs, according to a CNBC report.

Trump’s administration has imposed a baseline 10% tariff on all imports and additional duties on specific products, such as autos, steel, and aluminum.

Under the first sale rule, businesses can calculate customs duties using the first sale price when there are multiple transactions before import.

Essentially, when a product reaches the U.S. from manufacturing countries like China via a third country, the rule enables importers to pay tariffs on the initial price charged by the factory to the overseas vendor.

The rule was introduced in 1988 and gained prominence again during the first Trump presidency.

According to a PWC report, the rule states that the manufacturer must have sold the goods “bona fide” to the intermediary to be eligible, and the two must be independent and deal with each other at "arm's length."

Additionally, when the manufacturer is shipping to the intermediary, the export destination should be mentioned as the U.S. Importers must present valid documents showing the “structures of the entire transaction.”

“If you don’t use it, then the end cost is going to go up. And if your competitor is using the [first sale] rule, then you’re going to lose that advantage over them,” Rich Taylor, a corporate business development consultant, said to CNBC.

Several businesses, including Italian luxury fashion brand Moncler and biotech firm Kuros Biosciences, have pointed out the rule to negate the impact of tariffs, according to the CNBC report.

The Trump administration had moved to eliminate a tariff loophole called the “de minimis”, which allowed small parcels valued at $800 or under to be exempted from duties. However, a 120% tariff rate on such parcels from China was cut to 54% following a trade deal between the two countries.

The iShares China Large-Cap ETF (FXI) has risen 19.7% year to date (YTD) compared to a 1.7% decline in the SPDR S&P 500 ETF (SPY).

Also See: US Steel Retail Traders Extremely Bullish After Trump Approves Nippon Bid: Analysts Weigh In

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