Think tariffs are just a 25 percent markup? Think again.
- Dave McMahon
- May 14
- 4 min read
May 14, 2025
By Mark J. Sheffield
Woods Cycle Country
Tariffs get thrown around in headlines and strategy meetings like they’re a simple math problem: A vehicle used to cost $20,000. Add 25% in tariffs, and now it’s $25,000. End of story.
Except, it’s not.
In reality, the way tariffs are calculated is far more nuanced—and many dealers (and frankly, some OEMs) don’t fully understand what’s happening upstream. And that misunderstanding could cost you.
What Are Tariffs Really Based On?
Tariffs aren’t based on what a dealer pays for a vehicle. They’re based on the declared value of the shipment when it lands at a U.S. port.
So let’s say a container hits the port with a declared value of $1 million. If that shipment is subject to a 25% tariff, the importer writes a check to U.S. Customs for $250,000. Then — and only then — can those goods move to a warehouse and eventually trickle down to dealerships.
But here’s the kicker: the dealer cost often has little to do with the declared value.
Take a $10,000 ATV, for example. That’s what the dealer pays. But the declared value on the customs paperwork might only be $5,000. The remaining $5,000 is typically margin that supports the importer or distributor’s domestic operations—things like warehousing, logistics, sales support, and profit.
That means tariffs are being applied to $5K, not $10K. And this difference opens the door to a wide range of cost-reduction strategies that companies upstream from you may already be using.
How Companies Minimize Tariff Exposure
Here are a few of the most common (and legal) methods companies use to minimize their tariff bills:
Sourcing from lower-tariff countries: Partnering with manufacturers in countries that have free trade agreements or favorable status with the U.S. can significantly reduce or eliminate tariffs.
Changing the country of origin: Some companies move assembly or finishing work to a different country to legally change the product’s country of origin, thus qualifying for a lower tariff bracket.
Itemized component declarations: By breaking down the value and country of origin for each part, companies can reduce the overall tariff owed—especially if certain components are exempt.
Tariff engineering: Designing or modifying a product so it fits into a different (and cheaper) tariff classification—like importing parts separately and assembling them in the U.S.
Bonded warehouses and Foreign Trade Zones (FTZs): These allow importers to delay, reduce, or sometimes avoid paying tariffs entirely if the goods are re-exported or modified in a certain way.
Proper HTS classification and valuation: Getting the Harmonized Tariff Schedule code wrong—or overdeclaring the value—can lead to overpayment. Proper compliance matters.
Duty drawback programs: In some cases, companies can get a refund for tariffs paid on goods that are later exported.
Watch for the Rise of the Tariff Consultant
As this gets more complicated—and as tariffs potentially increase—we’re going to see the emergence of a whole new breed of consultants: tariff specialists.
These folks will market themselves to OEMs, importers, and eventually dealers, promising to help reduce exposure and improve margins. Some will be legit, with deep backgrounds in customs law, global logistics, or international tax. Others… not so much.
For large dealer groups or volume importers, hiring a knowledgeable consultant may be a smart investment. But for everyone else, this is one of those areas where a little knowledge goes a long way. You don’t need to be a trade attorney, but you should understand the basics well enough to ask the right questions—and spot the red flags.
What Dealers Can Do to Prepare
Let’s face it: the tariff landscape is volatile. It’s influenced by elections, trade disputes, foreign policy, and economic posturing. And while you may not be able to control any of that, you can take steps to prepare your business.
Here are a few ways to stay ahead of the curve:
Talk to your suppliers: Ask about their sourcing strategies and how tariffs are affecting their landed costs. The more transparent they are, the better positioned you’ll be.
Diversify your product mix: If you rely too heavily on one brand or country of origin, you’re more vulnerable. Consider carrying complementary lines that aren’t exposed to the same risks.
Educate your team: Your sales and F&I teams should understand the broader economic forces at play. That way, when prices move, they’re better equipped to explain the “why” to customers.
Define the mechanics: Determine if you will pass on these additional taxes to your customers, and if so how. Will they be included in the selling price or separated as an additional line item? What will you call this charge? Is your DMS capable of supporting this additional fee? And one final nuance, under the laws of your state, if you line item a tariff, is it in fact taxable?
Track landed costs over time: Even if you’re not importing directly, keep an eye on trends. If you start seeing sudden jumps in pricing, ask questions—tariffs could be part of the story.
Trust but verify: Remain informed about national policies. When and if tariff rates are reduced, make sure your suppliers aren’t continuing to include those surcharges on your invoices.
Consider your own imports carefully: If you’re a dealer importing directly from overseas, this is where things get serious. Make sure your customs paperwork, HTS codes, and declared values are airtight. Non-compliance isn’t just expensive—it’s potentially criminal.
The Bottom Line
The next round of tariffs—whether new or extended—won’t just hit overseas manufacturers. They’ll hit everyone along the supply chain, including dealers. And if you’re not paying attention to how tariffs really work, you could be absorbing costs that don’t belong to you.
Understanding the mechanics behind declared value, tariff classification, and legal cost-avoidance strategies helps you better interpret price changes, hold your vendors accountable, and protect your margins.
Tariffs may be unavoidable. But the smart dealers? They’ll be ready for them.
Mark J. Sheffield is a Strategic Advisor at Woods Cycle Country in New Braunfels, Texas. He is also a member of the Board of Directors for both the National Powersports Dealer Association and the Texas Motorcyle Dealers Association. Contact him at mark@markjsheffield.com.
