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.
What are tariffs?
Tariffs are taxes placed by the government on goods imported from other countries. Usually, they are implemented to protect domestic industries, generate revenue, and influence international trade partners.
To understand how tariffs work, it’s important to understand that they’ve 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 might be dealing with them for the first time.
In fact, as of July 2025, consumers face an average effective tariff rate of 18.7%, the highest it’s been since 1933. Notably, 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.
How do tariffs work in practice?
To help you understand how tariffs work, we’ll walk you through a hypothetical example. Let’s say you are a contract manufacturer based in the U.S. who imports raw steel from Canada. If there’s a tariff in place, it means that you, and anyone else receiving raw steel from Canada, will pay it.
What is an HTS code?
Every imported product is assigned a Harmonized Tariff Schedule, or HTS, code, which determines the tariff rate applied. This means the tariff you pay varies depending on the specific goods you import. To get a clear picture of the costs for your supplies, visit our HTS Sourcing Guide.
Who pays tariffs, and how?
When your goods hit customs, it can feel like the check arriving at the end of a dinner because you’re not quite sure who’s footing the bill. But in this case, it’s clear: The importer pays the tariff. In our example, that means you, the U.S.-based contract manufacturer receiving goods from Canada, would pay the tariff.
Here’s how it works: When your goods enter the country, U.S. Customs and Border Protection, or CBP, steps in to review 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 value, and its country of origin. Once confirmed, payment is due before your goods can be 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, you’ll be responsible for paying CBP directly, either electronically or at the physical port of entry.
What are Incoterms?
Before we explore how things usually work in practice, it’s helpful to understand how responsibilities are defined contractually, and that’s where Incoterms come in.
Incoterms, short for International Commercial Terms, are a set of 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
When the risk and ownership of goods transfer from the seller to the buyer
While Incoterms don’t specifically say who pays tariffs, they do define who is responsible for customs clearance, and that’s usually the same party that pays the duties.
For example:
Under DDP (Delivered Duty Paid), the seller is responsible for clearing goods through U.S. customs and paying any tariffs before delivery.
Under DAP (Delivered at Place) or EXW (Ex Works), the buyer is responsible for import duties and tariffs.
To see what the Incoterm on your import means, view our breakdown of Incoterms. Knowing your agreed-upon Incoterm helps you avoid confusion, unexpected costs, or delays.
Typical tariff roles and responsibilities
Even though Incoterms define who’s responsible, in practice, the tasks involved in paying tariffs are often delegated to experienced trade partners like customs brokers or freight forwarders. Here’s a breakdown of who typically does what:
Your supplier (Exporter):
Provides accurate product descriptions and commercial invoices
Handles export documentation required by their country
Unless your shipment uses the DDP Incoterm, your supplier won’t deal with U.S. import tariffs.
Your freight forwarder:
Arranges shipping and logistics from origin to destination
Provides shipping timelines and cost estimates
May coordinate between seller and buyer, but they act on behalf of the responsible party under the Incoterms
Your customs broker:
Classifies your goods using the correct HTS code
Calculates tariff and duty amounts
Files customs paperwork and pays duties and tariffs, then invoices you
Ensures smooth clearance and compliance
Most U.S. importers work with a customs broker because even if the Incoterms say they’re responsible, a broker makes the process easier and more accurate.
You (Importer):
Legally responsible for paying tariffs, duties, and filing accurate information
Must understand what you're importing and ensure accurate classification
Should budget for tariff costs and build them into your pricing or margins
Unless your contract specifies otherwise (For example, DDP), you are the party responsible for paying import tariffs.
3 Key factors that determine your import tariff costs
The amount you’ll pay in tariffs depends on three key things:
The HTS code of your product
This 10-digit classification code tells U.S. Customs and Border Protection (CBP) exactly what your product is. Each HTS code corresponds to a specific tariff rate in the U.S. Harmonized Tariff Schedule.
The declared value of your goods
Tariffs are usually calculated as a percentage of the item’s value. For example, a 5% tariff on a $10,000 shipment would result in a $500 duty.
The product’s country of origin
Trade agreements or penalties can raise or lower the duty rate depending on where the goods are made.
Use the customs tariff search tool to find out the tariff rate and calculate what you’ll pay.
Are there any tariff exemptions?
Certain imports can be exempt from tariffs under specific circumstances. These exemptions are often tied to the purpose of the import or special trade programs. For example, goods imported for national defense projects may qualify for duty-free treatment, as can items used in research, education, or humanitarian aid.
Additionally, products imported under free trade agreements (like the United States–Mexico–Canada Agreement) or through temporary importation bonds may also be exempt from tariffs, provided they meet specific eligibility criteria. To determine whether an exemption applies, it’s important to work with a customs broker or consult U.S. Customs and Border Protection for guidance.
Practical tariff tips for small buyers and operators
Navigating tariffs can feel overwhelming, especially if you’re balancing multiple roles or managing a small team. Whether you’re a solo buyer, a shop owner wearing many hats, or part of a small purchasing team, here are some targeted strategies to help you stay ahead without losing precious time or margin.
For shop owners and operators:
You’re responsible for procurement, finance, operations, and more—adding tariffs into the mix can feel like an unexpected complication. To protect your margins and avoid downtime:
Build tariff costs into your pricing models early so you’re not caught off guard by increased expenses.
Lean on trusted customs brokers and freight forwarders who can handle paperwork and help you avoid costly delays.
Communicate clearly with your suppliers about Incoterms to set expectations on who handles tariffs and shipping.
Consider tools that centralize vendor profiles, track pricing and costs over time, and provide easy-to-read dashboards. These features help you monitor tariff impacts alongside order details, enabling faster, more informed decisions without adding extra steps to your day.
For solo buyers:
Handling sourcing, quoting, and ordering solo means every new challenge cuts into your already packed schedule. To reduce vendor chasing and last-minute surprises:
Use customs tariff tools to estimate duties before placing orders. Knowing your costs upfront makes quotes and negotiations smoother.
Set clear expectations with suppliers and logistics partners about responsibilities and timelines.
Automate repetitive tasks where possible, like tracking shipments or retyping quotes, to free up time for higher-priority work.
Consider tools that automate quote tracking, send reminders for follow-ups, and streamline communication with suppliers. By reducing manual tasks and organizing your sourcing process, you’ll have more time and clarity to manage tariffs and vendor relationships effectively.
For small purchasing teams:
With spreadsheets, emails, and countless follow-ups, your team is likely stretched thin and looking for clarity. To improve efficiency and accuracy:
Centralize tariff and shipment information so everyone has visibility and can spot issues early.Track shipments closely against agreed Incoterms to avoid surprises around who pays what and when.
Consider software or tools that automate classification, tariff calculations, and compliance tasks, reducing errors and streamlining workflows.
Consider tools that offer shared access for your team, real-time updates on shipments and costs, and automated reporting. These capabilities improve visibility and coordination around tariffs and other expenses, helping your team avoid errors and keep suppliers accountable.
Next steps
Tariffs add complexity and costs to international sourcing, but having a clear understanding of how they work enables better decision-making and more accurate budgeting. With this knowledge, you can manage supplier relationships more effectively, reduce unexpected expenses, and maintain control over your supply chain.
Using a robust sourcing platform can help streamline this process by organizing vendor information, tracking costs—including tariffs—and automating routine tasks. This allows purchasing teams to focus on strategic sourcing while minimizing errors and administrative overhead. To see how Purchaser can help you get ahead of these tasks, book a demo.