Understanding U.S. Import Tariffs 101: A Guide for Small and Mid-Sized Businesses

Understanding U.S. Import Tariffs 101: A Guide for Small and Mid-Sized Businesses
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In today’s globalized trade environment, understanding and effectively dealing with U.S. import tariffs is a crucial requirement for small-to-midsize businesses. These tariffs, which are basically taxes on goods imported into the United States, play a substantial role in the final cost of products, the competitiveness of businesses, and the overall dynamics of international trade.

Regardless of whether you’re just starting to explore international sourcing, planning to hire a freight forwarder, or looking to optimize your existing import or export processes, understanding U.S. import tariffs will help you navigate the complexities of international commerce more effectively. In this article, we’ll delve into what import tariffs are, the different types, and their impact on your business. 

What Are Import Tariffs?

Import tariffs, also known as customs duties, are a form of tax imposed by a country on goods being imported into its jurisdiction. In the United States, these tariffs are enforced by the U.S. Customs and Border Protection (CBP), an agency under the Department of Homeland Security. 

Import tariffs do the following:

  • Raises revenue for the government.
  • Protects domestic industries from foreign competition.
  • Acts as retaliation in response to unfair trade practices by partner countries.

U.S. tariffs on imports typically increase the price of imported goods, making them more expensive and thus less competitive than domestically produced goods. 

In this regard, import quotas and tariffs are similar because they are typically implemented to give domestic businesses an advantage, allowing them to sell their goods at lower prices compared to their international counterparts.

What Are Export Tariffs?

Export tariffs, similar to import tariffs but less common, are levied by nations on goods exported abroad, often to regulate the export of certain goods and ensure domestic supply. They can also serve as a revenue source, like import tariffs.

What Are the Different Types of U.S. Import Tariffs?

There are several different types of tariffs that the U.S. imposes on imported goods:

Ad Valorem Tariffs 

This is a tariff based on the value of the item. It’s expressed as a percentage of that value. For example, an ad valorem tariff might be 10% of the value of a car.

Specific Tariffs 

This is a fixed amount of tax that does not depend on the value of the item. For example, a specific tariff might be $100 per ton of steel, regardless of its market price.

Compound Tariffs

This type of tariff is a combination of an ad valorem tariff and a specific tariff. For example, a compound tariff might be 5% of the value of a car plus $1,000 per car.

Tariff Rate Quotas (TRQs)

This is a two-tiered tariff, with a lower tariff rate for imports up to a certain quantity and a higher rate for imports exceeding that quantity.

Provisional Tariffs

These are temporary tariffs that can be imposed when a government is considering whether to take action against another country engaging in unfair trade practices, such as dumping price subsidies applied in the exporting country.

Variable Tariffs

A variable tariff changes based on factors such as the price of the goods in the domestic market or the volume of imports. For example, the tariff might be higher if the price of the goods is lower in the domestic market or if the volume of imports exceeds a certain threshold.

Prohibitive Tariffs

A prohibitive tariff is so high that it effectively bans the import of a good. For example, if the tariff on a car was several times its value, it would be too expensive for anyone to import the car.

Retaliatory Tariffs

These are tariffs that are imposed in response to tariffs imposed by other countries. For example, if country A imposes a tariff on cars from country B, country B might impose a retaliatory tariff on wheat from country A.

Countervailing Duties (CVDs)

These are tariffs that are imposed to counter the effects of foreign subsidies. If a foreign government subsidizes an industry, it can make that industry’s goods cheaper and more competitive in the international market. To level the playing field, the U.S. might impose a CVD equal to the amount of the foreign subsidy.

Anti-dumping Duties (ADDs)

Dumping is when a foreign company sells goods in the U.S. for less than it costs to produce or less than it sells for in its home country. This can harm domestic industries by undercutting their prices. To counter this, the U.S. might impose an ADD to bring the price of the dumped goods up to a fair level.

Who Enforces U.S. Import Tariff Policy?

As mentioned earlier in this post, the enforcement of U.S. tariff laws primarily falls under the jurisdiction of the U.S. Customs and Border Protection (CBP), a bureau of the Department of Homeland Security.

The CBP enforces tariff laws through the process of inspection, auditing, and investigations. Importers are required to declare their imported goods to the CBP, provide necessary documents, and pay any assessed duties. CBP officers inspect the imported goods to ensure compliance with U.S. laws and regulations, including tariff laws

In cases of suspected non-compliance, CBP can carry out investigations and impose penalties, including fines, forfeitures, and sanctions.

When Are Import Tariffs Used?

Import tariffs are applied when goods are imported into the U.S. After the goods arrive at a U.S. port of entry, the importer, usually through a customs broker or a freight forwarding agent that hires the broker on behalf of the shipper, must file an entry document with the CBP, which includes information about the type of goods, their value, and their country of origin. Once the CBP verifies this information and the appropriate tariff is paid, the goods can be brought into the U.S. market.

Apart from the regular application of tariffs, the U.S. government has the authority to impose additional tariffs under certain circumstances. For example, under Section 301 of the Trade Act of 1974, the U.S. can impose tariffs on countries that it determines have engaged in unfair trade practices. Similarly, under Section 232 of the Trade Expansion Act of 1962, the U.S. can impose tariffs on imports that threaten national security.

Who Pays Tariffs on Imports?

U.S. import tariff laws can be quite complex due to the nature of international trade, fluctuating political climates, and ongoing trade negotiations. Historically, countries such as China, Mexico, Canada, and the European Union have been significant contributors to U.S. import tariffs due to the high volume of trade between these countries and the U.S. 

It’s worth noting that most products entering the U.S. from Mexico and Canada are imported duty-free, with some exceptions, due to The U.S.-Mexico-Canada Agreement (U.S.MCA or USMCA). It’s also important to mention that import tariffs can vary significantly from year to year based on changes in trade policies, trade volumes, and the specific products being traded.

Classification of Goods and Determination of Tariffs for U.S. Importers

In the United States, importers are required to pay a tariff on certain items they import. The rate of these tariffs is specified by the U.S. Harmonized Tariff Schedule (HTS), which lists the duty rates for virtually every class of goods. These rates are decided by U.S. trade policy.

Classification of an item to determine its correct duty rate can be complex, involving factors such as the item’s composition, origin, and assembly location. The U.S. International Trade Commission provides an interactive database that can give an approximate idea of the duty rate for a particular product, but the actual rate may vary based on the specifics of the imported item. The final determination of the correct rate of duty is made by the U.S. Customs and Border Protection, not the importer.

What Is the Average Import Tariff the U.S. Applies to Imports?

As of May 2023, the trade-weighted average tariff value in the United States was calculated by dividing the total tariff revenue collected over a given year by the total value of its imports. The latest reported value from 2020 was 2.87%, as per the World Bank’s collection of development indicators.

What Types of Goods Are U.S. Import Tariffs Applied To?

 Industrial goods, which encompass all non-agricultural goods, carry U.S. import tariffs

As an example of what these goods include, here is a short list that includes products such as:

  • Textiles and clothing
  • Leather and footwear
  • Autos and transportation equipment
  • Minerals and different metals
  • Machinery
  • Information technology products
  • Petroleum
  • Chemicals
  • Fish and fish related product
  • Consumer goods
  • Wood products

Industrial tariffs are customs duties on these non-agricultural merchandise imports and are levied either on an ad valorem basis (percentage of value) or on a specific basis (for instance, $1 per 100 pounds). 

The majority of U.S. merchandise imports (approximately 94 percent) are industrial goods, and the United States (as of May 2023) has a trade-weighted average import tariff rate of 2.0 percent on these goods. Interestingly, half of all industrial goods imports enter the United States duty-free. The Office of Small Business, Market Access and Industrial Competitiveness (SBMAIC) handles industrial tariff issues within the USTR and provides additional information on tariff schedules, customs classification, industrial tariffs in free trade agreements, and other tariff initiatives.

For more detailed information, the Office of the United States Trade Representative provides additional information on tariff schedules, free trade agreements, and other tariff initiatives.

How Have Import Tariffs Affected the U.S. Economy?

Since the inception of the United States, tariffs on imported goods have played a crucial role in shaping the nation’s economic trajectory. Early in U.S. history, tariffs acted as a significant source of federal revenue, with the Tariff Act of 1789 being the first major act passed by Congress, explicitly designed to raise funds for the new government and protect domestic industries. Since then, the U.S. has progressively implemented free trade policies in the 20th century. The shift facilitated market expansion, increased competition, and innovation but also raised concerns about domestic job losses. 

While tariffs can be a significant source of revenue for the U.S., many believe tariffs tend to reduce the volume of imports by a little or a lot, depending on the type of goods being imported and the tariff associated with the product in question. A sliding scale approach suggests that the more tariffs are applied, the greater the volume of imports would be reduced.

What Are The Tariffs on Chinese Imports?

In 2022, U.S. goods and services imports from China reached the highest levels ever recorded, with goods imports alone rising 6% in 2022 relative to 2021, nearly returning to the 2018 peak levels. Despite this increase, the tariffs introduced during President Donald Trump’s 2018–19 trade war remain in place as of April 2023, covering roughly two-thirds of U.S. goods imports from China, which amounts to over $300 billion.

In simple terms, the U.S. has placed tariffs or extra charges on many of the goods it imports from China. Some goods have a 25% tariff, others have a 7.5% tariff, and some goods don’t have any tariff at all.

First Category of Chinese Imports – Subject to High Tariffs

The first category, which includes products like semiconductors, furniture, I.T. hardware, and some consumer electronics, still faces trade war tariff rates of 25%. 

Second Category of Chinese Imports – Not Subject to Tariffs

The second category includes products that were never hit with trade war tariffs. Interestingly, U.S. imports of these goods from China were 42% higher in 2022 compared to the 12 months that preceded the trade war, largely offsetting the decline in imports of tariffed products. This category includes products like toys, video game consoles, smartphones, laptops, and computer monitors, for which demand increased sharply due to the COVID-19 pandemic.

Third Category of Chinese Imports – Subject to Lower Tariffs

The third category includes products that began facing tariffs in the fall of 2019, also known as List 4A, but at a much lower tariff rate of 7.5%. These products include clothing and footwear, and their imports from China were 8% lower than before the tariffs. 

Ship4wd Helps You Navigate the Details of U.S. Import Tariffs

Ship4wd helps small-to-midsize businesses import goods into the U.S. As part of our freight forwarding service, we provide assistance to help you navigate the complex issues around customs, including helping you complete the documentation required to clear customs, identify and pay tariffs and duties when importing goods into the U.S., and avoid delays at customs. 

To meet the specific needs of SMBs, we provide 24/7 customer support that is available to assist you with your shipping and guide you in navigating our platform. Our support team consists of real experts in the field, ensuring personalized and efficient service. Additionally, Ship4wd offers secure online payment methods, insurance options, and flexible financing solutions to help streamline your shipping process.

With Ship4wd as your trusted partner, you can reach new heights and turn your shipping process into a value-adding aspect of your company’s operations. Take the first step toward the future of freight transport by harnessing the power of industry-leading digital freight forwarding Sign up to Ship4wd today!

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