U.S. Importers Turn to ‘First Sale Rule’ to Legally Sidestep Tariff Costs

Economic

China–U.S. Trade War

Summary:

Amid renewed U.S. tariff pressure, businesses are increasingly applying the “first sale rule”—a decades-old provision in customs law—to reduce duty costs by declaring the original transaction price...

A Legal Loophole Gains Momentum Under Tariff Pressure

As U.S. tariffs on imports rise again, companies are reviving a little-known but entirely legal strategy in customs law to blunt the financial blow: the “first sale rule.” In essence, the rule allows importers to calculate duties based on the first price paid in a multi-step transaction, often far lower than the final purchase price.

This method, codified in 1988, lets a U.S. retailer declare the cost from the original foreign manufacturer—say $5—even if a middleman sold it to them for $10. Customs duties are then calculated on the $5, bypassing the markups added by intermediaries. The savings can be substantial, particularly for high-margin consumer goods such as fashion, electronics, or luxury products.

Why Interest Is Surging Again

Interest in the rule surged during Donald Trump’s first presidential term, when his administration introduced 25% tariffs on Chinese goods in 2018. With the return of similarly aggressive tariffs—most recently 145% on some Chinese exports—law firms and trade consultants report a sharp increase in inquiries.

“It’s been around for a very long time but everybody’s beginning to explore it with more interest,” said Brian Gleicher, senior lawyer at Miller & Chevalier. “When the first administration had 25% tariffs [on China in 2018], that’s when we started getting calls. Now with the new tariffs, the first sale rule has started coming up again.”

Requirements and Complexities

To apply the rule, businesses must meet strict criteria: there must be at least two independent sales; the parties must be unrelated; the item must be destined for the U.S.; and the original transaction price must be documented. This can be challenging—many middlemen are unwilling to disclose pricing structures, and importers must secure detailed supply chain data to satisfy U.S. Customs and Border Protection.

Rich Taylor, a corporate consultant in Ningbo, China, highlighted the role of trust: “There has to be a level of transparency between all parties. But if you don’t use it, and your competitor does, you risk losing pricing power.”

Who’s Using It—and Why

Leading companies in diverse sectors are beginning to publicly acknowledge the rule as part of their tariff mitigation strategy. Italian fashion house Moncler reported a “significant benefit” from first sale accounting, noting that their manufacturing cost is roughly half of their internal transfer price. Biotech firm Kuros Biosciences announced it would restructure operations through Zurich to adopt the rule. U.S. companies such as Traeger and Fictiv also cited the rule as part of their supply chain and tariff planning in recent earnings calls.

Although most beneficial for industries with large margins, the rule can be adapted across various supply chains—especially when exporters and wholesalers are strategically positioned in tariff-neutral jurisdictions like Hong Kong or Switzerland.

A Challenge to Tariff Policy Goals

While the first sale rule is entirely within legal bounds, its expanded use runs counter to the intended impact of the tariff regime. Trump’s aggressive trade stance is designed not only to raise revenue but to incentivize reshoring of production to the United States. If importers can reduce duties without changing suppliers or moving manufacturing, the underlying policy objectives may be undermined.

U.S. Customs and Border Protection has not released data on how widely the rule is being used. The White House has not commented on the implications, but trade lawyers acknowledge that broader adoption could sharply erode tariff revenues and stall the administration’s reshoring goals.

A Strategic Pivot Within the Law

The growing interest in the first sale rule highlights how businesses are adapting to an increasingly volatile trade environment. While Washington seeks to pressure foreign supply chains through tariffs, importers are turning inward—within the bounds of legal strategy—to preserve their margins and competitiveness.

In doing so, they reveal a broader truth: policy signals may shift rapidly, but companies armed with legal expertise and supply chain transparency can still navigate around them. The question now is whether the administration will attempt to close this loophole—or tacitly allow it as a pressure valve in an inflation-sensitive economy.

Source: CNBC

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Economic

Reprieve Secured, But Uncertainty Lingers

The European Union may have gained breathing room by delaying U.S. President Donald Trump’s threatened 50% tariffs on EU imports until July 9, but the bloc now faces a far more difficult challenge: producing a deal that both appeases the White House and respects the EU’s multilateral structure and regulatory independence.

Trump agreed to extend the deadline following a call with European Commission President Ursula von der Leyen, in which both sides recommitted to fast-tracking negotiations. The European Commission hopes to use this momentum to push for a “zero-for-zero” industrial tariff agreement and expanded purchases of U.S. goods such as soybeans, liquefied natural gas, arms, and possibly hormone-free beef.

U.S. Wants Quick Wins; EU Pushes Back on Scope

While the EU’s proposal centers on reciprocal economic gains and regulatory cooperation, Washington appears focused on narrowing its nearly €200 billion goods trade deficit with the bloc. The U.S. has issued a list of non-tariff barriers it wants eliminated—ranging from value-added taxes and food safety standards to national-level digital services taxes.

However, these demands cut to the core of EU sovereignty. Taxation and digital policies are largely under the control of individual member states, not the European Commission, making it legally and politically impossible for Brussels to negotiate them away. European Trade Commissioner Maros Sefcovic has reiterated that any agreement must be equitable, and will stress this position in a call with U.S. Commerce Secretary Howard Lutnick.

An industry source familiar with the talks said Trump is seeking a quick win with a mix of symbolic gestures and real concessions. But EU officials remain wary of undermining regulatory standards or setting a precedent for unilateral U.S. pressure.

Standards, Not Barriers: The EU's Red Line

European lawmakers, including Bernd Lange, chair of the European Parliament’s trade committee, argue that what Washington sees as protectionism is in fact regulatory independence. “It’s about our standards, our chemicals regulation and our digital regulation,” Lange said, stressing these are not negotiable trade barriers but expressions of EU policy priorities. While minor revisions to specific rules might be feasible, wholesale adoption of U.S. standards is a non-starter.

The Trump administration's broader goal of reshoring key industries—such as steel, autos, semiconductors, and mobile phones—adds further strain to the discussions. The White House views trade not just as a vehicle for tariff reform but as a strategic lever for industrial policy, complicating the EU’s effort to secure a balanced agreement.

Internal Divisions and Structural Constraints

The EU’s negotiating position is further constrained by its institutional complexity. Unlike Washington, where trade decisions can be centralized and politically driven, the EU must balance 27 member states with diverse economic structures and policy interests. Irish Agriculture Minister Martin Heydon emphasized the importance of standing firm: “We are one of the most important trading partners for the U.S. So we shouldn't just agree to whatever the demand is from the White House.”

In this context, any agreement that appears overly one-sided could spark internal backlash and weaken the Commission’s authority in future negotiations. Heydon framed Trump’s frustration as a backhanded compliment, highlighting the EU’s resilience in defending its core economic and legal principles.

Compromise Possible, But Not at Any Cost

With less than six weeks until the revised July 9 deadline, the EU is racing to craft a trade solution that offers enough economic incentive to the U.S. without ceding ground on deeply embedded standards and national sovereignty. The road to a “mutually beneficial” deal remains fraught—not just due to the scale of U.S. demands, but because many of them strike at the heart of how the EU governs itself.

Unless Trump’s administration shows flexibility on its more sweeping requests, Brussels may face another showdown—one that no longer ends in a diplomatic delay. The next phase of talks will test whether transatlantic trade can remain grounded in negotiation, or whether it veers back toward confrontation.

Source: Reuters

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China–U.S. Trade War

Economic

Profit Growth Persists Amid External and Domestic Headwinds

China’s industrial sector showed signs of renewed momentum in April, with official data from the National Bureau of Statistics (NBS) revealing a 3.0% year-on-year increase in profits for the month and a 1.4% rise over the January–April period. These gains mark an acceleration from March’s 2.6% growth and signal modest resilience in the face of mounting external trade frictions and domestic price instability.

April’s performance follows a cumulative 0.8% profit gain in Q1 2025, which reversed a 0.3% contraction seen in the first two months of the year. The continued improvement in profitability comes as China navigates through volatile global demand, internal deflationary pressure, and deepening trade tensions with the United States.

U.S. Tariffs Cast Long Shadow Over Export Prospects

The profit uptick came despite an escalating trade conflict with the United States, which resumed tit-for-tat tariff measures in April. President Donald Trump’s announcement of 145% reciprocal tariffs on Chinese goods, while pausing similar measures for most other countries, raised fears about a new wave of protectionism. Although a temporary truce was reached earlier this month, economists warn that failure to secure a durable agreement could cost China as many as 16 million jobs if exports to the U.S. drop by 50%.

This external pressure has raised doubts about the sustainability of China’s export-led recovery, especially with factory output and retail sales slowing in recent weeks despite better-than-expected export data in April.

Deflation Continues to Squeeze Corporate Margins

While top-line profit figures appear encouraging, price trends point to deeper structural concerns. April marked the 31st consecutive month of factory-gate deflation, with producer prices seeing their steepest decline in six months. This prolonged period of falling input costs reflects weak domestic demand and adds stress to manufacturers’ profit margins, particularly for firms operating on thin returns.

In response, Chinese authorities have begun deploying targeted economic stimulus. Early this month, Beijing unveiled a wide-ranging policy package that includes interest rate cuts and major liquidity injections to spur private investment and consumer spending. In parallel, support measures have been introduced to help exporters pivot toward domestic markets as a hedge against external shocks.

Profit Gains Uneven Across Ownership Structures

The NBS breakdown shows a divergence in performance between ownership types. State-owned enterprises (SOEs) reported a 4.4% decline in profits over the four-month period, continuing a trend of underperformance amid structural reforms and overcapacity challenges. In contrast, private-sector firms saw profits grow by 4.3%, while foreign-invested companies posted a 2.5% gain—highlighting the agility of non-state actors in adapting to volatile market conditions.

The data encompasses large and mid-sized industrial firms with annual main business revenue of at least 20 million yuan, providing a window into the financial health of China’s productive core.

Profits Resilient but Structural Risks Persist

China’s industrial profit rebound in April offers a glimmer of stability amid a turbulent economic backdrop. Yet the recovery remains fragile. Persistent deflation, softening domestic consumption, and renewed tariff risks from the U.S. all pose downside risks in the months ahead.

While recent policy support has helped stabilize expectations, the uneven distribution of gains across ownership types and the enduring squeeze on margins suggest deeper reforms may be necessary to sustain growth. For now, China’s manufacturers are showing grit, but the pressures they face are far from transitory.

Source: Reuters

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Daily News

[Quick Facts]

1. ECB President: The rise of the euro is at the right time

2. Germany indicates no restrictions on the range of weapons supplied to Ukraine by Western nations

3. Iran reiterates need to retain uranium enrichment activities

[News Details]

ECB President: The rise of the euro is at the right time

ECB President Lagarde addressed a forum in Berlin on the 26th. Lagarde stated that the current dollar-based international monetary system is becoming uncertain, and Europe needs reforms to mitigate its exposure to shifts in the international order. She elaborated that global multilateral cooperation is being supplanted by zero-sum games and bilateral power plays, with openness yielding to protectionism, and even the dollar's dominance is becoming uncertain.

She also mentioned that Europe should make the euro the preferred currency for international trade invoicing, achievable through new trade agreements, enhanced cross-border payments, and liquidity agreements with the ECB. The potential benefits for Europe are substantial.

Germany indicates no restrictions on the range of weapons supplied to Ukraine by Western nations

On May 26, local time, German Chancellor Merz stated that Germany and the EU would maintain their support for Ukraine, with Germany and its allies removing restrictions on the range of weapons provided. Merz noted that the UK, France, and the US are supplying cruise missiles to Ukraine, and Germany will follow suit. However, Merz did not specify whether this implies Germany will provide "Taurus" cruise missiles to Ukraine. The German "Taurus" cruise missile has a range of up to 500 kilometers, exceeding the range and precision of the "Storm Shadow" missiles supplied to Ukraine by the UK and France.

Iran reiterates need to retain uranium enrichment activities

Iranian Foreign Ministry spokesperson Baghaei stated on the 26th that Iran must maintain uranium enrichment activities, an integral component of its peaceful nuclear energy program and nuclear industry, and will not compromise on this. Concurrently, Iranian President Masoud Pezeshkian downplayed the repercussions of potential negotiation breakdowns, indicating no concern regarding U.S. sanctions.

[Today's Focus]

UTC+8 14:00 Germany Gfk Consumer Confidence for June

UTC+8 14:45 France Preliminary CPI MoM for May

UTC+8 16:00 2026 FOMC voting member Kashkari participates in a policy panel discussion at the Bank of Japan's Institute for Monetary and Economic Studies

UTC+8 17:00 Eurozone Industrial and Economic Sentiment Indicators for May

UTC+8 20:30 US Durable Goods Orders MoM for April

UTC+8 21:00 US FHFA House Price Index MoM for March

UTC+8 21:00 US S&P/CS 20-City Unadjusted House Price Index YoY for March

UTC+8 22:00 US Conference Board Consumer Confidence Index for May

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Economic

Tokyo Takes Center Stage as Monetary Dilemmas Intensify

In a gathering reminiscent of Jackson Hole but rooted in East Asia, the Bank of Japan (BOJ) is hosting global policymakers for a two-day conference centered on the “new challenges for monetary policy.” This year’s symposium arrives at a moment of heightened global uncertainty, as central banks wrestle with conflicting signals—softening growth prospects colliding with the persistence of inflation, all within the shadow of unpredictable U.S. trade policy.

The event, largely closed to the media, is expected to explore critical issues including interest rate control, the mechanics of quantitative tightening, and the growing risks posed by inflation that refuses to fade. A highlight will be the BOJ’s consideration of an International Monetary Fund paper, Monetary Policy and Inflation Scares, which warns central banks against underestimating the lasting effects of supply shocks, such as those triggered by the COVID-19 pandemic or ongoing tariff conflicts.

Monetary Divergence and the BOJ’s Tactical Dilemma

Unlike its Western counterparts, the BOJ has only recently exited its ultra-loose policy regime. With core consumer inflation rising to 3.5% in April—its highest in over two years—BOJ Governor Kazuo Ueda faces intensifying scrutiny. Domestic price pressures, especially from food inflation (+7%), suggest real economic pain for Japanese households. And yet, the BOJ has paused further tightening, partly due to downgraded growth forecasts tied to U.S. tariffs.

Former BOJ official Nobuyasu Atago argues that the central bank does not need to abandon its hiking cycle but must calibrate its message carefully: “It just needs to communicate in a way that when the environment looks right, it can resume rate hikes.”

Fed, ECB, and Global Participants Navigate Conflicting Pressures

Representatives from the Federal Reserve, European Central Bank, Bank of Canada, and Reserve Bank of Australia are joining the Tokyo discussions. Each faces similar crosswinds. For the Fed, which had appeared to be on a rate-cut trajectory, the inflationary spillover from Trump's aggressive trade policies is now forcing caution. Last week, Fed officials admitted they were in a holding pattern due to creeping inflation driven by new tariffs.

The ECB is also recalibrating. Despite expectations for a rate cut in June, policymakers are warning that additional easing may be deferred if medium-term inflation pressures re-emerge. ECB board member Isabel Schnabel recently warned that while tariffs may dampen prices in the short term, they pose longer-term upside risks—a sentiment that aligns with the IMF's inflation scare thesis.

Trump’s Trade Policy: A Global Wildcard

The Trump administration's renewed trade aggression—particularly the looming 50% tariffs on EU goods—has become a central theme at the Tokyo meeting. These policy shifts have already led to higher bond yields in the U.S., a weaker dollar, and recalibrated inflation expectations globally. For central banks, this unpredictability undermines traditional forecasting models, which rely heavily on steady assumptions about trade and capital flows.

Trump’s tariffs have had immediate implications for Japan. On May 1, the BOJ slashed its growth outlook, citing external risks, effectively signaling a pause in its tightening cycle while short-term rates remain anchored at just 0.5%. The risk now is that Japan will fall further behind the curve if it delays adjusting policy amid rising inflationary signals.

Keynote Addresses to Set the Tone

BOJ Governor Kazuo Ueda is scheduled to open the conference with a keynote speech Tuesday, expected to outline Japan’s evolving stance in light of both domestic pressures and global volatility. He will be followed by Agustin Carstens, General Manager of the Bank for International Settlements, who will likely provide a broader global perspective on how monetary frameworks need to evolve.

The symposium will revisit the legacy of unconventional policy tools, such as yield curve control and negative rates, while acknowledging that the post-pandemic world now demands new frameworks—ones that can accommodate both geopolitical disruptions and volatile inflation paths.

Navigating Policy in a Fragmented World

The BOJ-hosted summit in Tokyo reflects a turning point for global monetary policymakers. The dual forces of persistent inflation and decelerating growth, compounded by erratic fiscal and trade shocks, are forcing central banks to question long-held doctrines. While each economy faces unique challenges, the shared uncertainty makes collaborative insights more vital than ever.

The conference signals that monetary orthodoxy is evolving—away from rigid inflation targeting and toward a more nuanced, flexible approach that acknowledges real-world complexities. In an era shaped by political volatility and economic fragmentation, the path forward will require central banks to remain adaptive, transparent, and deeply interconnected.

Source: Reuters

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James Whitman

Economic

Central Bank

Key points:

● Governments have narrow window to put fiscal house in order, BIS says

● Fiscal dominance could lead to rising inflation, sharp FX falls

● Central banks shouldn't be expected to stabilise inflation at short time horizons

Governments across the globe must curb their "relentless" rise in public debt as higher interest rates make fiscal paths for some countries unsustainable, Agustin Carstens, General Manager of the Bank for International Settlements said on Tuesday.

Large deficits and high debt appeared sustainable when interest rates were kept low after the global financial crisis, allowing fiscal authorities to avoid making hard choices such as cutting spending or raising tax, he said.

"But the days of ultra-low rates are over. Fiscal authorities have a narrow window to put their house in order before the public's trust in their commitments starts to fray," Carstens said in a speech delivered at a conference hosted by the Bank of Japan in Tokyo.

"Markets are already waking up to the fact that some paths are not sustainable," he said, warning that financial markets could suddenly destabilise in the face of large imbalances. "That is why fiscal consolidation in many economies needs to start now. Muddling through is not enough."

The warnings came in the wake of recent steady rises in bond yields in the United States, Japan and Europe, driven in part by market expectations that their governments will ramp up spending funded by increased debt.

Defaults on public debt can destabilise the global financial system and threaten monetary stability as central banks may be compelled to finance government debt, leading to fiscal dominance over monetary policy, Carstens said.

"The result would be rising inflation and sharp exchange rate depreciations," he said. "In light of these considerations, it is essential for fiscal authorities to curb the relentless rise in public debt."

The BIS aims to foster international monetary and fiscal cooperation among central banks and to serve as a bank for central banks.

Carstens said many countries will face pressure for more public spending due to population ageing, climate change and higher defense spending.

"Fiscal authorities must provide a transparent and credible path to safeguard fiscal solvency, ideally underpinned by stronger fiscal frameworks. They must then follow through on their commitments," he said. "Central banks cannot be the only game in town."

For monetary policy, Carstens said central banks should not be expected to stabilise inflation "at very short horizons and within narrow ranges."

"This is particularly important because, as recent events have shown, inflation will partly depend on factors that are not under central banks' control," he said.

Source: Reuters

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James Whitman

Commodity

OPEC+ brought forward a video-conference that will decide July oil production levels for eight key members by one day to May 31, delegates said.

The eight-nation sub-group led by Saudi Arabia and Russia held preliminary talks last week on making another bumper output increase of about 411,000 barrels a day for a third consecutive month, to be finalized during its conference call. One delegate, who asked not to be identified, said the date change was simply a reflection of scheduling issues.

The Organization of the Petroleum Exporting Countries and its partners sent crude prices plunging to a four-year low below $60 a barrel in early April by announcing it would revive supplies at triple the planned speed this month, and doubled down on the move with another surge set for June. Crude futures have since recovered to near $65.

The supply hikes by OPEC+, coming at a time of faltering demand and concern over President Donald Trump’s trade wars, took most crude traders by surprise, marking a distinct rupture with years of action by the alliance to shore up world oil markets.

Late schedule changes have become increasingly common in recent years for OPEC+, and easier to arrange as the coalition holds meetings online rather than at its headquarters in Vienna.

The full 22-nation alliance is also due to hold a set of virtual meetings on May 28, with the opportunity to review group-wide output quotas that underlie the latest supply restraints.