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Trade Talk Blog: Tariffs
01 May 2025

What Is A Tariff?

When a product crosses a country’s border, the government can charge a tax before the product enters the country’s domestic economy. In essence, a tariff is the tax that a government imposes on imported goods. The U.S. can impose tariffs on essentially all goods entering the country. The Harmonized Tariff Schedule of the U.S. (HTSUS) […]

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When a product crosses a country’s border, the government can charge a tax before the product enters the country’s domestic economy. In essence, a tariff is the tax that a government imposes on imported goods.

The U.S. can impose tariffs on essentially all goods entering the country. The Harmonized Tariff Schedule of the U.S. (HTSUS) is the method by which import tariffs are assessed on goods entering the U.S. The HTSUS is published, maintained, and updated by the International Trade Commission, an independent agency of the U.S. government. Tariff rates in the HTSUS are divided into two columns:

  • Column 1 duties apply to countries with which the US has normal trade relations (essentially all countries). Column 1 is subdivided into two columns:
    • General: The general rate is the default rate applied to most goods, unless the country of export is granted preferences or the country does not have normal trade relations with the US; and
    • Special: “Special” rates are in effect for various trade agreement or preference programs. These are lower rates than would otherwise apply under the General column.
  • Column 2 duties apply to countries with which the US does not have normal trade relations. These rates are usually significantly higher than the general rate. As of the date of this post, countries in this column include Cuba, North Korea, Russia and Belarus.

There are several types of tariffs, primarily:

  • Ad valorem duties: Ad valorem duties are based on the monetary value of the imported item; expressed as a percentage of the value. For example, if an item is subject to a 20% duty, the amount owed on a $100 item would be $20. The vast majority of U.S. tariffs are levied on an ad valorem basis.
  • Specific duties: Specific duties are levied on items at a fixed amount per item, based on weight, volume, or some other measurement. For example, $2 per shirt.
  • Tariff-rate quotas: Tariff-rate quotas are tariffs that kick in or rise significantly after a certain amount of imports is reached. For example, the first $10,000 worth of an item may face an ad valorem duty of 1%; all imports after the first $10,000 face an ad valorem duty of 10%.
  • Absolute quotas: Absolute quotas (often referred to simply as “quotas”) are a strict limit on the value or amount of goods entering the U.S.; they can be applied globally or to specific countries. Once the quota has been met in the quota period, no further items subject to the quota may be imported.

Who pays a tariff?

A prevalent misconception is that foreign suppliers automatically pay tariffs. This is not true. In the U.S., tariffs are legally required to be paid by “the importer of record” at the time the goods enter the U.S. The importer of record is typically a U.S. buyer. The party that ultimately bears the cost of the tariffs is a little more complex, however, as the payment ultimately depends on the contractual agreements between the U.S. buyers and their foreign suppliers.

Sometimes the contract sets forth these responsibilities through the use of the International Chamber of Commerce’s International Commercial Terms (also known as Incoterms), which provide a shorthand for the responsibilities for various costs in international trade transactions. For instance, the term Delivered Duty Paid (DDP) indicates that the seller is responsible for all costs, including duties and tariffs, until the goods reach the agreed location inside the buyer’s customs territory. Conversely, terms like EXW (Ex Works) or FOB (Free on Board) place the burden of import duties and tariffs on the buyer.

When the contract does not explicitly address tariff responsibility, the economic burden becomes a matter of negotiation between the exporter and importer.

For businesses engaged in international trade, understanding the allocation of tariff payments has practical implications. It is advisable to review existing contracts to understand tariff responsibilities and discuss steps going forward.

Questions?

Please contact the authors Wei Wang , Aimee J. Jachym and/or Marcus C. Hoekstra or another member of our corporate international practice.