For the past few weeks, I have had several people seeking answers to basic tariff questions, and even the new AI Overview does not necessarily provide answers.
A tariff is a tax applied to imported goods and services.
Technically, the Constituion grants Congress the power to set and collect tariffs and regulate commerce with foreign nations. Congress can and has given the President the authority to negotiate trade agreements and adjust tariffs within specific guidelines.
The importer of record pays the tariff at the time the goods enter the country. Once offloaded from the ship into the port they are held until the tariff is paid.
The tariff, in the case of US tariffs, is paid to the US U.S. Customs and Border Protection (CBP). If you used a legit fright company you should know what the expected tariff rate will be.
It is similar to a company importing, except that in this case, the individual buyer will be responsible for paying any applicable tariffs at the time of delivery, depending on the item’s declared value and customs regulations. For most shipments directly to individuals, no tariff is applied due to an agreement not to tariff items under a fixed limit. Imports into the US have a “De Minimis” threshold of $800. Any items with a declared value of under $800 do not typically face a tariff. Note that the current administration has suspended this exemption for all imports from China.
For example, you buy a collectible GI Joe with the King Fu grip from a store in Australia for $500. Under “de minimise” rules, there would be no tariff on that purchase. If you purchased a package with GI Joe and assorted clothing and gear for $1,000, then you would have to pay the tariff rate for the category it falls under.
Due to the elimination of the De Minimus exemption for goods from China or Hong Kong, individual buyers will be responsible for paying any applicable tariffs at the time of delivery, depending on the item’s declared value and customs regulations, regardless of the value.
This applies primarily to shipments for personal use, such as when you purchase a product from a foreign website. The de minimis threshold is the value limit under which goods can enter a country without paying import duties or taxes. If the declared value of an imported item is $800 or less, it usually enters duty-free under Section 321 of the Tariff Act. Note each country has a differnet rate for imports into their country.
If the item’s value exceeds $800, depending on the shipping method, the package may be held by customs until you or your shipping company pays the applicable tariff or taxes. Most e-commerce stores software will indicate if there is a tariff or additional taxes at time of purchase. In some cases, with FedEx or UPS, they will notify you to pay them, sometimes in advance so that they can make the payment on your behalf at the port of entry.
Tariffs are typically calculated as a percentage of the declared value of the goods. The percentage (tariff rate) is determined by the product’s Harmonized Tariff Schedule (HTS) code. Example: A 25% tariff on a $200 unit = $50 duty per unit. In the screen capture below a search for bananas presents the tariff rates based on the type. If they are fresh or organic, there are no tariffs applied. But dried have a 1.4% tariff and special tariffs for specific markets.
The price used to calculate the tariff is the “declared value” of the item(s). This value is derived from the price/value listed on a commercial invoice issued by your supplier. If you import widgets for resale, your manufacturer will sell them to you at a wholesale cost – that is the price you paid for them. It is NOT based on your retail or additive price you sell them to the end consumer.
Tariffs are paid at the time of import, when the goods are cleared through customs at the port of entry.
There is typically an effective date
In many cases the prices need to increase to offset them. The company importing the product must decide if and how much of the tariff to pass on to the consumer. Some may not pass it on to gain or keep market share but that may not be sustainable for long. For every dollar of tariffs that the company does not pass on that is a dollar less profit. Companies with narrow margins, such as those in the produce industry, will need to add it to their wholesale or retail pricing, whereas higher-margin products companies may only pass on a fraction or none of the tariff. It is unlikely that any company can absorb the increased costs resulting from high tariffs on goods from China.
The simple answer is the US Treasury since that is who is paid. There is a belief that a US industry benefits because foreign goods will now be more expensive to purchase, thereby encouraging people to buy domestic products. Similar logic suggests that American manufacturing benefits, as companies seeking to avoid high tariffs may opt to manufacture their goods in the US or purchase from US manufacturers, thereby increasing jobs and tax revenue for the US.
In FY2024, Customs and Border Protection collected $77 billion in tariffs, amounting to 1.57% of total federal revenue. Since World War II, U.S. trade policy has focused on promoting global trade and achieving broader foreign policy objectives. Accordingly, maintaining lower tariffs, except where punitive against a nation, has been the practice to protect critical and strategic US industries.
