Don’t Laugh-Here’s How Penguins Waddled Into Trump’s Trade War

When U.S. Commerce Secretary Howard Lutnick took to TV to defend the sweeping 2025 Trump tariffs that roiled world markets and looked set to upend decades of trade agreements, it’s unlikely he expected penguins would waddle into the discussion. Yet there he was, explaining to newscasters how the remote Heard and McDonald Islands—territories 4,000 kilometers from Australia and populated only by penguins and seals—had landed on America’s tariff hit list.

“If you leave anything off the list,” Lutnick said, “the countries that try to basically arbitrage America go through those countries to us.”

That explanation—that shippers would route goods through a remote Antarctic locale to avoid higher taxes in the U.S.—raised more questions than it answered. Australian Trade Minister Don Farrell called the penguin island tariffs “clearly a mistake” and evidence of a “rushed process.” Below, we explain why this would be such a potential problem for administering the highest U.S. tariffs since 1909.

How the US Came To Be Taxing Penguin Island Exports

This peculiar Antarctic footnote in America’s burgeoning trade war could suggest massive unintended consequences for broad economic policies carried out with often minimal research, as administration leaks to the Wall Street Journal and other outlets seem to show.

The islands, without human visitors for almost a decade, somehow managed to “export” $1.4 million worth of “machinery and electrical” products to the U.S. in 2022, according to World Bank data. Similarly, Norfolk Island—with 2,188 residents and no known export relationship with the U.S.—is listed as sending $655,000 worth of goods to America in 2023. Yet, “there are no known exports from Norfolk Island to the U.S.,” George Plant, the island’s administrator, told reporters.

So, how did we get here? In the Norfolk’s Island case, shipping records show goods from Norfolk, U.K., were incorrectly labeled as coming from the island instead. The Guardian newspaper also found shipments of Timberland boots from the Bahamas and many other erroneous records in U.S. import data.

The Origin-Sourcing Dilemma

For decades, global trade experts have warned that determining a product’s true country of origin is remarkably difficult in today’s interconnected supply chains. Just as penguins are graceful in water but have an awkward gait on land, the international system for tracking product origins is smooth in theory, but stumbles in practice.

If shipping clerks can’t correctly distinguish among different Norfolks worldwide, what hope is there for accurately tracking components that cross multiple borders during assembly? For multinational corporations, rerouting shipments through lower-tariff countries isn’t a devious scheme—it’s standard logistics optimization.

To qualify for a country’s lower tariff rate, products must undergo “substantial transformation” in that country, according to the U.S. Customs and Border Patrol, creating something with a “use different from that possessed by the article prior to processing.” But with minimal paperwork changes, companies can transform a product’s “nationality” far more easily than customs enforcement can detect it. For example, a wool sweater maker in Ireland (subject to the EU’s 20% tariff) might theoretically shift production to Northern Ireland to access the U.K.’s lower 10% rate.

That’s exactly why islands of penguins ended up getting slapped with tariffs, Lutnick says. “The President put tariffs on China…in 2018,” he said, “and [China] just built through other countries.”

While that might explain putting minimal tariffs (a 10% baseline) on all imports, the fact that goods were listed as coming from islands inhabited by penguins and seals in the first place could reveal a graver issue. Simply closing gaps in a tariff system won’t fix errors already within the system, or make a binary national-origin framework (tariffs imposed between the U.S. and each nation) necessarily work for goods that are fundamentally multinational.

“To be fair, such problems could exist” in earlier systems, noted Phil Levy, a trade policy expert, in a report for George Mason University’s Mercatus Center. “But the more uniform the application of tariffs across trading partners”—as with the Trump tariffs—”the less this sort of ‘tariff engineering’ is a problem. 

The Bottom Line

The Trump tariffs are aimed at a global economy where products cross multiple borders during production, making origin determination far more difficult to enforce. As companies abroad adapt in response, the Trump administration’s approach will rely significantly on its ability to address “tariff engineering.”