You’ve been placing the same order with your overseas supplier for years—same quality and quantity, same price, same delivery schedule. Only now there’s a new line item on your invoice that significantly raises the price: “Tariff.”
You’re not alone. With the implementation of new and increased tariffs, businesses are suddenly grappling, often for the very first time, with what they are and how they’ll impact their bottom line.
With limited bandwidth and the urgent need to secure supplies without straining vendor relationships, learning about tariffs may feel like yet another heavy lift, regardless of if you’re a shop owner, solo buyer, or small purchasing team. Below, we’ll break down the most important things you need to know about tariffs, so your business can avoid costly surprises and stay ahead of what’s coming.
Key concepts
| Term | Definition |
|---|---|
| Tariff | A tax imposed by a government on goods imported from other countries |
| HTS Code | A 10-digit product classification code that determines the tariff rate applied at U.S. customs |
| CBP | U.S. Customs and Border Protection — the agency that reviews shipments and collects duties |
| Incoterms | Standardized international trade terms that define who is responsible for transport, insurance, and customs clearance |
| Customs Broker | A licensed professional who files import paperwork and pays tariffs on behalf of the importer |
| Country of Origin | Where goods were manufactured — determines which tariff rates and trade agreements apply |
| Declared Value | The stated value of imported goods, which is the basis for calculating ad valorem tariff amounts |
What are tariffs?
Tariffs are taxes placed by the government on goods imported from other countries. They are typically implemented to protect domestic industries, generate government revenue, and influence trade relationships with other countries.
Tariffs have been a part of global trade for centuries and a fixture in U.S. policy since the country’s founding. However, recent legislation has pushed them back into the spotlight, which is why you and your business may be dealing with them for the first time.
As of July 2025, consumers face an average effective tariff rate of 18.7%, the highest it’s been since 1933. Tariffs on key raw materials like steel and aluminum have doubled, rising to 50%, while automobile tariffs have also seen sharp increases, significantly impacting costs across industries.
Key takeaway: A tariff is a percentage-based tax on the declared value of imported goods. The rate you pay depends on the product’s HTS code, its declared value, and its country of origin.
How tariffs are calculated in practice
To understand how tariffs work, consider a concrete example. You are a U.S.-based contract manufacturer who imports raw steel from Canada. If a tariff is in place, you — and anyone else receiving that steel — will pay it. The tariff is calculated as a percentage of the declared value of the goods and collected by U.S. Customs and Border Protection before the shipment is released.
What is an HTS code?
Every imported product is assigned a Harmonized Tariff Schedule (HTS) code, which determines the tariff rate applied. This means the tariff you pay varies depending on the specific goods you import — two similar-sounding products can carry very different rates. To understand HTS codes and find the right one for your products, see our HTS Sourcing Guide.
Who pays tariffs, and how?
The importer pays the tariff. In the example above, that means you — the U.S.-based manufacturer receiving goods from Canada.
Here’s how it works: When your goods enter the country, U.S. Customs and Border Protection (CBP) reviews the shipment. Using the HTS code assigned to your product, CBP verifies the classification and applies the corresponding tariff rate based on the product type, its declared value, and its country of origin. Payment is due before your goods are released.
Most businesses work with a Customs Broker or Freight Forwarder, who handles the paperwork, manages communication with CBP, and pays the tariff on your behalf — then invoices you later. If you’re importing goods yourself without a broker, you’ll pay CBP directly, either electronically or at the port of entry.
How Incoterms define tariff responsibility
Before exploring how things work in practice, it’s important to understand how responsibilities are defined contractually. That’s where Incoterms come in.
Incoterms (International Commercial Terms) are standardized trade terms published by the International Chamber of Commerce (ICC). They define the responsibilities of buyers and sellers in international transactions, including who arranges and pays for transport and insurance, who handles export and import customs clearance, and when risk transfers from seller to buyer.
While Incoterms don’t specifically dictate who pays tariffs, they define who is responsible for import customs clearance — and that’s usually the same party that pays the duties.
| Incoterm | Who Handles U.S. Import Customs | Who Pays the Tariff |
|---|---|---|
| DDP (Delivered Duty Paid) | Seller | Seller |
| DAP (Delivered at Place) | Buyer | Buyer |
| EXW (Ex Works) | Buyer | Buyer |
| FOB (Free on Board) | Buyer | Buyer |
| CIF (Cost, Insurance, Freight) | Buyer | Buyer |
To understand what the Incoterm in your contract means for your specific situation, see our complete Incoterms guide.
Who does what: roles and responsibilities
Even when Incoterms define who’s responsible, the tasks involved are often delegated to specialized trade partners. Here’s how responsibilities are typically divided:
| Party | Primary Role | Tariff Responsibility |
|---|---|---|
| Supplier (Exporter) | Provides accurate product descriptions, commercial invoices, and export documents | Not responsible for U.S. import tariffs unless the Incoterm is DDP |
| Freight Forwarder | Arranges shipping and logistics; coordinates between seller and buyer | Does not pay tariffs; acts on behalf of the responsible party |
| Customs Broker | Classifies goods with the correct HTS code, calculates duties, files customs paperwork | Pays tariffs and duties on behalf of the importer, then invoices |
| Importer (You) | Legally responsible for accurate classification and tariff payment | Reimburses the customs broker or pays CBP directly |
Most U.S. importers work with a customs broker because even when Incoterms assign responsibility, a broker makes the process more accurate and reduces compliance risk.
Key takeaway: You, the importer, are legally responsible for paying tariffs. A customs broker handles the mechanics, but you’re accountable for accurate classification and timely payment.
3 key factors that determine your import tariff cost
| Factor | What It Determines | Example |
|---|---|---|
| HTS Code | The tariff rate that applies to your specific product | ”Raw steel” and “steel pipe fittings” carry different HTS codes and different rates |
| Declared Value | The dollar amount the tariff percentage is applied to | A 5% tariff on a $10,000 shipment = $500 due at customs |
| Country of Origin | Whether preferential rates, trade agreements, or penalty rates apply | Goods from USMCA partners may qualify for reduced or zero tariff rates |
Use the U.S. International Trade Commission’s customs tariff search tool to look up the tariff rate for a specific HTS code before placing an order.
Are there tariff exemptions?
Certain imports can qualify for reduced or zero tariffs under specific circumstances:
- Free trade agreements — Products from USMCA (Canada, Mexico) or other FTA partners may qualify for preferential rates if they meet rules of origin requirements.
- Temporary importation bonds — Goods imported temporarily for trade shows, testing, or repair can re-export duty-free.
- Special purpose imports — Goods for national defense, research, education, or humanitarian aid may qualify for duty-free treatment.
- Exclusion requests — In some cases, importers can apply to USTR for exclusions from specific Section 301 or Section 232 tariffs.
To determine whether an exemption applies to your products, work with a customs broker or consult U.S. Customs and Border Protection directly.
Practical tariff strategies for small buyers and purchasing teams
Navigating tariffs can feel overwhelming when you’re balancing multiple roles or managing a small team. Here are targeted strategies by role.
For shop owners and operators
You’re responsible for procurement, finance, and operations — adding tariffs into the mix creates compounding complexity. To protect your margins:
- Build tariff costs into your pricing models before placing orders, not after the invoice arrives.
- Work with a trusted customs broker and freight forwarder who can handle paperwork and flag compliance issues early.
- Confirm the Incoterm on every import contract so you know in advance who is responsible for duties.
- Use a sourcing platform that tracks total landed cost — including tariffs — alongside unit pricing, so cost comparisons reflect what you’ll actually pay.
For solo buyers
Handling sourcing, quoting, and ordering solo means every new complexity cuts into your schedule. To reduce surprises:
- Look up HTS codes and estimate duties before finalizing orders — knowing your costs upfront makes quotes and negotiations more reliable.
- Set clear expectations with suppliers and logistics partners about responsibilities and timelines before shipment begins.
- Automate repetitive tasks where possible, like shipment tracking and quote follow-ups, to free time for higher-priority decisions.
For small purchasing teams
With spreadsheets, emails, and constant follow-ups, small teams need visibility and consistency. To improve accuracy:
- Centralize tariff and shipment information so all team members have access and can flag issues early.
- Track every shipment against its agreed Incoterm to avoid surprises around who pays what and when.
- Consider software that automates HTS classification and tariff calculations — reducing manual errors and shortening cycle times.
Frequently asked questions about import tariffs
Who is legally responsible for paying import tariffs in the U.S.? The importer of record is legally responsible. That’s typically the U.S.-based buyer receiving the goods. A customs broker may pay on your behalf and invoice you, but you are the party with legal liability for accurate classification and timely payment.
Can my supplier pay the tariff for me? Yes, if your contract uses the DDP (Delivered Duty Paid) Incoterm. Under DDP, the seller is responsible for all costs including import duties through delivery. For any other Incoterm — DAP, FOB, EXW, CIF — the buyer handles import customs and pays the tariff.
What happens if I use the wrong HTS code? Misclassification can result in underpaying or overpaying duties, CBP penalties, shipment delays, and potential audits. If you’ve been using an incorrect code, work with a customs broker to submit a prior disclosure and correct the classification going forward.
How do I find the tariff rate for my product? Use the HTS code for your product to look up the applicable rate in the U.S. Harmonized Tariff Schedule via the U.S. International Trade Commission’s online database. If you’re unsure of the correct HTS code, a customs broker can classify your product, or you can request a binding ruling from CBP.
Are there legal ways to reduce import tariff costs? Yes. Options include sourcing from countries covered by free trade agreements, applying for product exclusions where available, using bonded warehouses to defer duty payment, restructuring products to qualify for a lower-tariff HTS classification (with proper documentation), or using temporary importation bonds for goods that will be re-exported.
What’s the difference between a tariff and a customs duty? The terms are often used interchangeably. “Tariff” typically refers to the rate schedule or the policy framework; “duty” refers to the actual payment owed on a specific shipment. In practice, importers use both terms to describe the tax paid at customs.
Next steps
Tariffs add real complexity and cost to international sourcing, but understanding how they work enables more accurate budgeting, better supplier negotiations, and fewer post-shipment surprises.
Key actions for importers:
- Verify the HTS code for every product you import regularly.
- Confirm the Incoterm on every import contract before goods ship.
- Build tariff costs into landed cost calculations before comparing vendor quotes.
- Work with a licensed customs broker if you’re new to importing or if your product classifications are complex.
Using a robust sourcing platform can help by organizing vendor information, tracking total landed costs including tariffs, and surfacing the data your team needs to make accurate decisions. To see how Purchaser handles this, book a demo.