In a founder group recently, folks were talking about #tariffs (duh). I Slacked a few thoughts around, and I wanted to post a more structured take on the blog here in hopes that it’s helpful to more than just my tight circle of manufacturing buddies.

A great question popped up, asking for thoughts on shifting production from Country A to Country B—I’ll let you fill in those blanks.

But if Country B has more forgiving (or even just more stable) tariffs, how much production/rework needs to shift to there to pass CBP scrutiny?

The answer is in a concept called “substantial transformation,” which in cases of multiple countries of origin for parts of a finished good, helps manufacturers and CBP determine the final declared country of origin.

Substantial Transformation: When Is a Thing No Longer That Thing?

At the center of this whole dance is a concept that sounds like it belongs in a philosophy class: “substantial transformation.”

It’s basically the supply chain version of the ship of Theseus problem—if you replace enough parts of something, when does it become something new?

U.S. Customs and Border Protection (CBP) has an answer, though it’s not exactly straightforward. They say substantial transformation happens when processing creates “a new and different article having a distinctive name, character, or use” from its imported components.

In other words: when is a button-plus-fabric no longer just components but actually a shirt? CBP cares a little less about math and a little more about meaningful change, although both are factors.

The Unwritten Rules

While CBP won’t give you a specific percentage threshold of cost, weight, etc. needed to quality a good as substantially transformed, people who’ve been in this game a while know the unspoken expectations:

• Just bolting parts together (even if you call it “final assembly”) usually won’t cut it
• You need multiple meaningful manufacturing steps that require actual skill
• The value you add should be substantial—guidance is to aim for 35-40% of the final product’s worth

When customs officials review your claims, they’re looking at a few key things: how complex your rework/transformation operations actually are; whether real skill is involved; if the essential character of the product comes from your claimed country; and whether the tariff classification changes significantly.

Buttons to Shirts: A Transformation Story

Take a simple example: Chinese buttons that travel to another country to become part of a shirt.

The buttons themselves are just buttons, but once they’re sewn onto fabric with other components to create a complete garment, they’re part of something entirely new.

The shirt has a different classification, purpose, and identity than its component parts—textbook substantial transformation.

Bonus points if the buttons are not ever sold as individual goods (aka they’re not “articles of commerce” in their own right).

Compare this with just putting Chinese-made shirts in different packaging or sewing on a new label. These cosmetic changes don’t fool anyone—customs officials have seen all the tricks.

The Watchful Eye Gets More Watchful

As attempts at manufacturing migration pick up speed, customs officials have gotten increasingly suspicious. Popular alternative manufacturing destinations are getting extra attention, with officials demanding more detailed proof that you’re actually making stuff there and not just running things through a glorified shipping center.

Getting Real About Risk

Here’s the thing nobody puts in the official handbook: this is all about risk management. Some companies, feeling squeezed by tariffs, might be tempted to cut corners on what counts as “substantial transformation.”

If you’re thinking about walking that line, consider:

1. Your freight forwarder operates on a don’t-ask-don’t-tell basis, but they suffer when CBP starts flagging their shipments for extra inspection
2. CBP has digital records of everything you’ve ever imported—they notice when identical products suddenly start coming from new countries
3. You’re not just dealing with U.S. customs—the exporting country has its own requirements and paperwork

The smart money is still on doing things right: actual substantial transformation through legitimate manufacturing, backed up with documentation that would satisfy even the most skeptical customs official.

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