In 2018, the United States shook global trade by imposing sweeping Section 301 tariffs on Chinese imports, triggering one of the most significant shifts in supply chain strategies and import practices of recent decades. As new reciprocal tariff rates take effect and the de minimis rule faces suspension at the end of this month, there’s urgent value in revisiting the repercussions of those initial Section 301 measures—their economic impact, how importers adapted, the role of “first sale” valuation, and the escalation of enforcement efforts by U.S. Customs and Border Protection (CBP). Understanding these lessons from the past is crucial for businesses now charting their course in another phase of intensified trade conflict.

What Happened in 2018: The Section 301 Tariff Shock

The first wave of Section 301 tariffs went into effect on July 6, 2018 as a direct response to China’s alleged unfair trade practices—including forced technology transfers and intellectual property theft. Initially targeting $34 billion in Chinese goods, the measures quickly expanded in further rounds, ultimately reaching hundreds of billions of dollars across multiple tranches, with tariff rates ranging from 10% to 25% on affected products¹. The industries impacted were diverse, from electronics to machinery and consumer goods, and almost half of all US tariff lines were eventually covered by some level of additional duty².

Supply Chain Impacts: The Rush to Reshore and Nearshore

Reshoring and Nearshoring Efforts

Companies accelerated efforts to relocate manufacturing closer to the U.S., either by bringing production back stateside (reshoring) or moving it to nearby countries like Mexico (nearshoring)³. Mexico, benefiting from the United States–Mexico–Canada Agreement (USMCA) and geographic proximity, became a leading partner for nearshoring, particularly in sectors such as automotive, electronics, and textiles⁴. This shift was motivated by a combination of the desire to avoid tariffs and increasing logistics costs and time delays associated with Asian suppliers. Concurrently, the “China + 1” strategy gained traction; U.S. firms diversified their supplier base by adding partners in Vietnam, India, and other countries to reduce overexposure to Chinese-sourced goods. For example, Vietnam’s exports of footwear—a sector heavily targeted by tariffs—rose significantly during this period⁵.

Challenges in Supply Chain Diversification

Despite the incentives, relocating production was rarely smooth or costless. Companies faced considerable challenges with onboarding new suppliers, maintaining quality control, and managing the geopolitical and regulatory risks inherent in these newly diversified networks⁶. The rush to “beat the tariffs” caused port congestion as importers accelerated shipments ahead of deadlines, which, in turn, drove up warehousing costs⁷.

Limited Growth in Domestic Manufacturing

While the administration’s policy rationale favored boosting U.S. manufacturing, evidence shows that domestic production growth was modest and often overshadowed by the redirection of imports to low-cost countries other than China. For instance, U.S. “cut and sew” apparel manufacturing increased by just 6.3% over one year, whereas imports from third countries rose by as much as 25% during the same period⁸.

Use of “First Sale” Valuation or Under-Valuation Tactics

In order to mitigate the increased tariff burden, importers increasingly leveraged the “first sale” rule. This valuation method allows duties—including Section 301 tariffs—to be calculated based on the price paid in the earliest bona fide sale (such as the manufacturer to a middleman), rather than the final price to the U.S. importer⁹. This approach can substantially reduce the declared customs value and thus the tariff liability.

The use of the first sale rule surged after 2018 as importers sought lawful means to lower their tariff exposure¹⁰. However, this method necessitates meticulous documentation demonstrating the legitimacy and arm’s-length nature of each transaction. Validation becomes especially complex for goods originating from “non-market economies” like China, where customs authorities intensified scrutiny⁹¹⁰. No clear evidence has emerged indicating widespread under-valuation or fraud, but the increased complexity inevitably created legal gray areas and led to more audits and disputes.

CBP’s Increased Enforcement on Valuation and Origin

Faced with the surge of tariffs and the risks of evasion, U.S. Customs and Border Protection (CBP) intensified its oversight activities. Audits, reviews, and penalties focusing on accurate product valuation and country of origin declarations increased significantly¹¹. Historical data shows a continuous rise in audits and trade penalties since the inception of Section 301 tariffs, with duties assessed from China alone reaching nearly $50 billion annually at the peak¹¹. CBP also increased enforcement on circumvention concerns, including assembly shifting, transshipment via third countries, and misdeclaration of origin¹². Special attention was paid to evaluating claims of “substantial transformation” for goods processed in third countries to determine whether qualifying changes in origin exempted products from 301 tariffs¹³.

Strategies Deployed by US Importers to Manage Tariff Impact

In response to these challenges, importers employed various strategies to reduce or defer tariff costs. Companies restructured their bills of material, increasing U.S.-origin content and scrutinizing country of origin claims to benefit from exclusions or apply lower tariff classifications¹⁴. Firms with substantial re-export volumes utilized the U.S. duty drawback program to reclaim duties paid on products subsequently exported, although eligibility for refunds varied¹⁵. Additionally, businesses engaged in tariff engineering by modifying products slightly to fit into non-tariffed classification categories¹⁶. The use of Free Trade Zones (FTZs) and bonded warehouses allowed some companies to defer tariffs or avoid them entirely when goods were re-exported without entering U.S. commerce¹⁷. Lobbying efforts also intensified, resulting in a flood of product exclusion requests submitted to the USTR. While some exclusions provided temporary relief, these were often narrow and time-limited¹⁸. Importantly, CBP maintained a strict stance on tariff circumvention; if light assembly in a third country fell short of a “substantial transformation,” Section 301 tariffs still applied¹³.

Key Takeaways for Today’s Importers

The legacy of the 2018 Section 301 tariffs offers several critical lessons for businesses navigating today’s renewed trade challenges. First, transitioning supply chains—whether by reshoring or nearshoring—is neither quick nor straightforward and demands substantial investment in partnerships, compliance, and logistics. Second, every approach to valuation, origin confirmation, and classification must withstand enhanced CBP scrutiny, making thorough documentation indispensable. Third, depending exclusively on tariff exclusions or carve-outs is precarious given their potential revocation amid shifting policy dynamics. Fourth, importers should maximize legally available duty mitigation tools such as FTZs and duty drawback programs, but expect heightened paperwork and compliance burdens. Finally, maintaining supply chain transparency—from raw materials through final assembly—is not merely advisable but essential for survival amid evolving trade enforcement.

Conclusion

The 2018 Section 301 tariffs represent a pivotal moment in U.S. trade policy, driving a broad and costly reconfiguration of global sourcing patterns toward nearshoring and supply chain diversification rather than a transformative resurgence in domestic manufacturing. The resulting complexity in compliance, valuation, and origin determination prompted an enforcement increase by CBP to ensure trade integrity across an increasingly layered supply chain. Importers that succeeded amidst these changes combined strategic sourcing, meticulous compliance, financial analysis, and active engagement in policymaking. As new reciprocal tariffs and changes to the de minimis rule come into effect, these lessons and tactical approaches remain highly relevant for businesses contending with continuing trade tensions.

References

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