How U.S. Tariffs Work: A Complete Guide for Importers

U.S. tariffs are taxes imposed by U.S. Customs and Border Protection (CBP) on goods imported into the United States, calculated based on the product's classification, country of origin, and declared value. Tariffs generate federal revenue, protect domestic industries, and serve as tools for trade policy enforcement, with rates ranging from 0% to over 100% depending on the Harmonized Tariff Schedule (HTS) classification.

Understanding how tariffs work is essential for any business importing products into the United States. Whether you're bringing in electronics from China, textiles from Vietnam, or machinery from Germany, you'll need to navigate customs duties, classification codes, and compliance requirements that directly impact your bottom line.

In this guide, you'll learn:

• The three main types of tariff duties and how they're calculated
• Step-by-step breakdown of the U.S. import process and duty collection
• How to classify products using HTS codes
• Special tariff programs (Section 201, 232, 301) and their impact
• Practical strategies to minimize tariff costs legally
• Common mistakes importers make and how to avoid them

What Are U.S. Tariffs?

U.S. tariffs are customs duties — taxes collected by U.S. Customs and Border Protection (CBP) when goods cross into American territory. These duties serve three primary purposes:

1. Revenue Generation: Tariffs contributed $80.8 billion to federal revenue in fiscal year 2023 [U.S. CBP, 2023]
2. Domestic Industry Protection: Higher duties on certain goods shield American manufacturers from foreign competition
3. Trade Policy Tool: Tariffs enforce trade agreements and respond to unfair trade practices

Unlike sales taxes paid by consumers, tariffs are paid by the importer of record (the U.S. entity bringing goods into the country) before CBP releases the shipment.

What Are the Three Types of Tariff Duties?

The United States uses three distinct methods to calculate customs duties, each suited to different types of products and policy objectives.

Ad Valorem Duties

Ad valorem duties (Latin for "according to value") are calculated as a percentage of the imported good's declared value. This is the most common type of U.S. tariff.

How it works:

• Duty = Declared Value × Tariff Rate Percentage
• Example: A $10,000 shipment of furniture with a 5% ad valorem rate = $500 in duties

Typical products: Electronics, clothing, furniture, machinery, consumer goods

Advantages: Automatically adjusts with inflation and market prices; simpler to administer for most goods.

Product Category	HS Code Example	Typical Ad Valorem Rate
Women's cotton shirts	6206.30.30	16.5%
Smartphones	8517.13.00	0% (most countries)
Bicycles	8712.00.15	11%
Wooden furniture	9403.50.90	0-2.5%
Ceramic dinnerware	6912.00.48	8.5%

Specific Duties

Specific duties are fixed amounts charged per physical unit — per item, kilogram, liter, or other measurement — regardless of the product's value.

How it works:

• Duty = Number of Units × Fixed Rate per Unit
• Example: 1,000 liters of ethyl alcohol at $0.54 per liter = $540 in duties

Typical products: Alcoholic beverages, tobacco, certain chemicals, textiles (per kilogram), petroleum products

Advantages: Prevents duty avoidance through undervaluation; provides predictable revenue for government.

Product Category	HS Code Example	Specific Duty Rate
Ethyl alcohol (fuel)	2207.10.60	$0.54 per liter
Cigarettes	2402.20.80	$1.05 per kg
Certain woven cotton fabrics	5208.31.40	$0.73 per kg
Certain footwear	6403.99.60	$0.90 per pair

Compound Duties

Compound duties combine both ad valorem and specific duty components, applying both percentage-based and per-unit charges to the same product.

How it works:

• Duty = (Declared Value × Percentage Rate) + (Number of Units × Specific Rate)
• Example: 500 pairs of leather shoes valued at $20,000
  • Ad valorem component: $20,000 × 8.5% = $1,700
  • Specific component: 500 pairs × $0.90 = $450
  • Total duty: $2,150

Typical products: Certain footwear, watches, some textile articles, select agricultural products

Advantages: Provides protection against both cheap imports and undervaluation; balances revenue with industry protection.

How Does U.S. Customs and Border Protection Collect Duties?

CBP collects duties through a systematic process that begins before your shipment arrives and involves multiple verification steps.

The Import Entry Process

1. Pre-Arrival Documentation (24-48 hours before arrival)

• Importer or customs broker files an entry summary (CBP Form 7501) electronically via the Automated Commercial Environment (ACE)
• Required information includes: HS classification code, country of origin, declared value, quantity
• CBP reviews documentation and assigns risk assessment score

2. Duty Calculation CBP calculates duties based on:

• HTS classification: 10-digit code determining duty rate
• Customs value: Typically the transaction value (price actually paid) plus shipping to U.S. port, insurance, and certain assists
• Country of origin: Determines applicable duty rate (normal trade relations, free trade agreement, or special program)
• Special tariffs: Section 301, 232, or 201 duties may apply on top of normal rates

3. Payment

• Duties must be paid within 10 business days of entry
• Payment methods: ACH debit, wire transfer, or periodic monthly statement (for established importers with bonds)
• Failure to pay results in liquidated damages claims against the surety bond

4. Release of Goods

• Once CBP reviews documentation and confirms duty payment arrangement, goods are released
• Average processing time: 1-2 days for routine shipments
• Some shipments selected for physical examination (5-7% of entries) [CBP Statistics, 2023]

5. Liquidation

• CBP conducts final review within 314 days (extendable)
• "Liquidation" is the final duty determination
• If CBP finds errors, additional duties may be assessed, or refunds issued

Import Process Flow Diagram

Shipment Prepared → Pre-Arrival Filing (ISF) → Arrival at U.S. Port → 
Entry Documentation Filed → Duty Calculation → Duty Payment → 
Cargo Release → Post-Entry Audit → Liquidation (Final Duty Determination)
     ↓
[If selected: Physical Examination adds 2-5 days]

How Do You Determine Your Product's Tariff Rate?

Finding the correct tariff rate requires accurate product classification using the Harmonized Tariff Schedule (HTS).

Understanding HTS Codes

The HTS is a 10-digit classification system used by CBP to identify products and assign duty rates:

• First 6 digits: Internationally standardized (HS code)
• Digits 7-8: U.S.-specific subheadings
• Digits 9-10: Statistical suffixes

Example: 6203.42.40.50

• 62 = Apparel (woven, not knit)
• 6203 = Men's suits, ensembles, jackets, trousers
• 6203.42 = Trousers of cotton
• 6203.42.40 = Men's trousers, bib and brace overalls
• 6203.42.40.50 = Specific statistical tracking code

Finding Your HTS Code

Method 1: CBP's Online HTS Tool

• Visit hts.usitc.gov
• Search by keyword or browse by chapter
• Review "General" column for most-favored-nation (MFN/normal trade relations) rate

Method 2: Request a Binding Ruling

• Submit CBP Form 6434-1 with detailed product description and samples
• CBP issues a legally binding classification (valid for 6 years)
• Protects against penalties if classification is later disputed

Method 3: Hire a Customs Broker

• Licensed professionals specializing in HTS classification
• Recommended for complex products or high-value shipments
• Typical cost: $150-$500 per product classification

Real Classification Example

Let's classify a wireless Bluetooth speaker:

Product description: Portable Bluetooth speaker with rechargeable lithium battery, 20W output, waterproof rating IPX7

Classification process:

1. Chapter 85: Electrical machinery and equipment
2. Heading 8518: Microphones, loudspeakers, audio amplifiers
3. Subheading 8518.21: Single loudspeakers mounted in enclosures
4. Final HTS: 8518.21.00.00

Duty rate: 4.9% ad valorem (for most countries with normal trade relations)

Calculation for $50,000 shipment:

• Customs value: $50,000 (FOB price) + $2,000 (freight) + $500 (insurance) = $52,500
• Standard duty: $52,500 × 4.9% = $2,572.50
• Section 301 China tariff (if applicable): $52,500 × 25% = $13,125
• Total duties: $15,697.50

What Are Special Tariff Programs (Sections 201, 232, 301)?

Beyond standard HTS rates, the U.S. imposes additional tariffs under special trade laws designed to address specific economic or national security concerns.

Section 301 Tariffs: Unfair Trade Practices

Section 301 of the Trade Act of 1974 authorizes the U.S. Trade Representative (USTR) to investigate and retaliate against foreign trade practices deemed unfair or discriminatory.

Current application: China tariffs imposed 2018-2019

• Covers approximately $370 billion in annual imports from China [USTR, 2023]
• Rates: 7.5% to 25% on top of normal duties
• Affected products: Machinery, electronics, textiles, furniture, chemicals

Example impact: A Chinese-made industrial pump (HTS 8413.70.20) faces:

• Standard duty: 2.5%
• Section 301 additional duty: 25%
• Total tariff: 27.5%

For detailed information on how these tariffs affect specific industries and strategies to minimize exposure, see our complete guide: [section-301-tariffs-explained]

Section 232 Tariffs: National Security

Section 232 of the Trade Expansion Act of 1962 allows tariffs when imports threaten national security, as determined by the Department of Commerce.

Current application: Steel and aluminum tariffs imposed 2018

• Steel: 25% additional duty
• Aluminum: 10% additional duty
• Certain countries exempted through agreements (Canada, Mexico, EU under quotas)

Affected products:

• Steel articles: HTS Chapter 72
• Aluminum articles: HTS Chapter 76
• Derivative products containing substantial steel/aluminum

Example: Importing steel pipes from Vietnam (non-exempt country):

• Standard duty: 0-1%
• Section 232 additional duty: 25%
• Total tariff: 25-26%

Learn more about qualifying for exemptions and country-specific rules: [section-232-steel-aluminum-tariffs]

Section 201 Tariffs: Surge Protection

Section 201 of the Trade Act of 1974 provides temporary "safeguard" tariffs when import surges cause serious injury to domestic industries.

Current application: Solar panels and residential washing machines (imposed 2018)

• Solar panels: 14% (declining annually from original 30%)
• Washing machines: Tariff-rate quotas (TRQ) with rates up to 50% above quota

How TRQs work: First X units enter at lower rate; imports above threshold face higher rate

These tariffs apply regardless of country of origin and are temporary (typically 3-4 years, declining annually).

For importers in these sectors, understanding exemption criteria and planning around quota limits is critical: [section-201-safeguard-tariffs]

What Strategies Can Reduce Your Tariff Costs?

Legal tariff minimization strategies can significantly improve import profitability without violating customs regulations.

Free Trade Agreements (FTAs)

The U.S. has FTAs with 20 countries allowing duty-free or reduced-rate imports on qualifying products:

Major FTAs:

• USMCA (Canada, Mexico): Duty-free for most qualifying goods
• CAFTA-DR (Central America): 80%+ of products duty-free
• Korea, Australia, Singapore, Israel: Extensive tariff elimination

Requirements:

• Product must be manufactured/substantially transformed in FTA partner country
• Must meet rules of origin (minimum % of FTA content)
• Certificate of Origin required at entry

Example savings: Mexican-made automotive parts under USMCA

• Standard duty: 2.5-4%
• USMCA rate: 0%
• Annual savings on $1M imports: $25,000-$40,000

Foreign Trade Zones (FTZs)

Foreign Trade Zones (FTZs) are designated areas within the U.S. where goods can be stored, assembled, or manufactured without immediately paying customs duties.

Benefits:

• Defer duty payment until goods leave the FTZ for U.S. commerce
• Pay zero duties on goods re-exported from FTZ
• Inverted tariff relief: Pay duty on finished product rate if lower than component rates

Example: Electronics assembly in FTZ

• Import components with 5% average duty
• Assemble into finished product (HTS classification with 2% duty)
• Pay only 2% on finished goods when entering U.S. commerce
• Savings: 3 percentage points on component value

Over 200 FTZs operate across the U.S. [National Association of Foreign-Trade Zones, 2023]

Duty Drawback

Duty drawback allows recovery of 99% of duties paid on imported goods that are subsequently exported or used in manufacturing exported products.

Types:

• Manufacturing drawback: Import materials, manufacture product, export finished goods
• Unused merchandise drawback: Import goods, export same/similar goods unused
• Rejected merchandise drawback: Return defective imports to supplier

Requirements:

• Must export within 5 years of import
• Detailed recordkeeping of import/export linkage
• File claim within 3 years of export

Example: Fabric importer pays $50,000 in duties, sells fabric to garment manufacturer who exports finished clothing

• Drawback recovery: $50,000 × 99% = $49,500

De Minimis Exemption

Shipments valued under $800 enter duty-free under the de minimis rule (the threshold below which no formal entry is required).

Strategic considerations:

• Each shipment to each consignee can qualify (not per-day limits for individuals, but commercial importers face scrutiny for artificial splitting)
• Cannot be used for Section 301 tariff avoidance
• Must be for personal use or commercial samples

Compliance warning: Intentionally splitting orders to abuse de minimis is fraudulent and risks severe penalties.

First Sale Rule

The First Sale rule allows using an earlier transaction price in the supply chain as customs value if certain conditions are met, potentially reducing the valuation basis for ad valorem duties.

Example scenario:

• Manufacturer in China sells to Hong Kong distributor for $100
• Hong Kong distributor sells to U.S. importer for $150
• If conditions met, use $100 as customs value instead of $150
• Duty savings at 10% rate: ($150 - $100) × 10% = $5 per unit

Requirements:

• Both sales must be bona fide arm's-length transactions
• Goods must be destined for export to U.S. at time of first sale
• Requires documentation of both transactions

What Are Common Tariff Compliance Mistakes?

Importers frequently make costly errors that result in penalties, duty overpayments, or shipment delays.

Classification Errors

Mistake: Using incorrect HTS codes based on casual research or supplier suggestions

Consequences:

• Underpayment: Penalties up to value of merchandise plus unpaid duties
• Overpayment: Money left on the table (CBP doesn't voluntarily refund)

Solution: Invest in professional classification, especially for: