Incainti Sofia McDonald and J. Dino Vasquez, Miller Nash LLP
Introduction
A tariff is a tax imposed by a government on goods imported into the country. Though the concept may appear straightforward, tariffs play a central and complex role in international trade policy. Governments employ tariffs to shield domestic industries from foreign competition, to generate revenue, and to leverage negotiating power in trade agreements. At the same time, tariffs can influence consumer prices, supply chains, and diplomatic relations.
The United States, like most countries, uses a structured classification and valuation system to determine how and when tariffs are applied. For importers, manufacturers, and policy professionals alike, a clear understanding of tariffs and their legal framework is essential to navigate the regulatory landscape and mitigate associated costs.
Tariffs and import duties
It is important to distinguish between tariffs and the broader category of import duties, which encompass a range of taxes imposed on imported goods. Tariffs are a subset of these duties, but other forms also exist to address specific trade concerns.
Customs duties are the most general form, typically calculated based on product category or declared value. Excise duties, in contrast, apply to specific goods such as alcohol and tobacco, and they often reflect public health or regulatory considerations rather than purely economic concerns. Anti-dumping duties are levied when a foreign company is found to be selling products in the U.S. market at prices below fair market value, potentially undermining domestic producers. Similarly, countervailing duties are imposed to counteract subsidies provided by foreign governments to their exporters, which may distort competitive conditions in the U.S. market.
Each of these duties can be imposed independently or in combination with standard tariffs, depending on the origin, nature, and purpose of the imported goods.
Categories of tariffs in the United States
In the U.S. tariff system, there are three main types of tariffs, each calculated differently and serving different regulatory purposes.
The first category is ad valorem tariffs, which are based on the value of the goods being imported. This value often reflects the declared cost of the goods, including insurance and freight, and it may be influenced by international commercial terms (known as INCOTERMS). For instance, if goods are imported with a declared value of $500,000 under Cost, Insurance, and Freight (CIF) terms and the applicable tariff rate is 10 percent, the importer would be responsible for paying $50,000 in tariffs.
The second type is the specific tariff, which is calculated based on physical measurements such as weight, quantity, or volume. Unlike ad valorem tariffs, specific tariffs are fixed and do not fluctuate with market price. They are commonly applied to raw materials or agricultural products, where valuation based on volume or weight is more practical and consistent.
The third category is the compound tariff, which combines both ad valorem and specific components. For example, imported aluminum may be taxed both as a percentage of its value and an additional amount per ton. These tariffs can be more complicated to calculate, requiring precise classification, documentation, and often additional scrutiny from customs authorities.
The Harmonized Tariff Schedule of the United States (HTS)
The cornerstone of the U.S. tariff classification system is the Harmonized Tariff Schedule of the United States (HTS). The HTS is maintained and regularly updated by the U.S. International Trade Commission. It codifies the duty rates for every type of imported product and serves as the basis for customs processing and trade statistics. Each product receives a unique ten-digit code based on its material composition, function, and other distinguishing characteristics. These codes not only determine the applicable duty rates but also assist in tracking trade data and enforcing trade restrictions.
For example, automotive wheel covers and hubcaps may be classified under HTS code 8708.70.60.45. This classification sequence begins at the section level (covering transport equipment), narrows to the chapter on motor vehicles, then further specifies the relevant part or accessory and its intended use. The general duty rate for these items may be 2.5 percent, but the rate can vary dramatically depending on the country of origin. Products imported from countries such as Cuba or North Korea may be subject to a 25 percent rate due to political restrictions, while goods from China may incur an additional 25 percent under Section 301 tariffs. These variations illustrate the importance of accurate product classification, which is often managed by licensed customs brokers due to the complexity involved.
Businesses of any size or individuals can hire a licensed customs broker; the more complex a shipment is or the greater the value of goods being imported, the more important a licensed customs broker is for risk mitigation. For those who wish to hire a broker, U.S. Customs and Border Protection (CBP) provides a list of permitted customs brokers and contact information.
Legal authorities for imposing tariffs: Section 301 and IEEPA
The U.S. government has multiple legal mechanisms at its disposal to impose tariffs, each rooted in distinct statutory authorities. Two of the most significant are Section 301 of the Trade Act of 1974 and the International Emergency Economic Powers Act (IEEPA). Each provides the executive branch with tools to respond to trade-related threats and unfair practices, although they differ in scope, purpose, and procedural requirements.
Section 301 of the Trade Act of 1974
Section 301 authorizes the Office of the United States Trade Representative (USTR) to investigate and respond to foreign trade practices that are deemed unfair or discriminatory and that burden or restrict U.S. commerce. The process is designed to be methodical, transparent, and consultative, involving multiple stages of investigation, negotiation, and, where necessary, enforcement.
Investigation
Investigations under Section 301 can be initiated in one of two ways. An interested party, such as a business, trade association, or labor group, may file a formal petition with the USTR, prompting an official inquiry. Alternatively, the USTR may initiate an investigation independently, based on its own assessment of foreign trade practices.
Consultation
During the consultation period, the USTR conducts consultations with the petitioner and seeks input from a variety of stakeholders. These include representatives from the private sector, members of industry advisory committees, and relevant agencies such as the U.S. International Trade Commission. Public comments are also solicited and reviewed through notices published in the Federal Register, ensuring transparency and public engagement.
Negotiation
If the investigation finds that a foreign policy or practice is an unfair or harmful to U.S. trade interests, the USTR will attempt to resolve the issue through negotiation. Where a formal trade agreement exists between the United States and the foreign country in question, any dispute resolution procedures outlined in that agreement are typically followed.
Retaliation
If a resolution cannot be achieved, the USTR may proceed to retaliation, imposing duties or other import restrictions on the goods of the offending country. The goal is to implement measures equivalent in value to the estimated harm suffered by the U.S. economy. Section 301 provides the USTR with broad authority to take action, which may include increasing tariffs, suspending trade concessions, restricting import licenses, or entering into binding agreements that compel the foreign country to eliminate the offending practice.
Once imposed, Section 301 tariffs remain in place for four years unless formally extended following a review.
In recent years, Section 301 has been used extensively to address trade imbalances and intellectual property concerns, particularly involving China. The USTR announced on April 17, 2025, that it would be pursuing further action targeting China’s maritime, logistics, and shipbuilding sectors. The proposed measures include new fees assessed on Chinese-owned vessel operators, fees on Chinese-built ships based on net tonnage or container capacity, and charges applied to foreign-built car carriers with ties to Chinese financing. These fees are designed to escalate over time, signaling long-term scrutiny of the sector.
Public involvement has played a significant role in shaping these decisions. For example, in connection with the maritime investigation, the USTR sought public comments and held a hearing in May 2025. More than six hundred written submissions were received, and sixty individuals testified. Based on this input, the USTR proposed modifying the structure of the tariff fees by shifting the basis of calculation to net tons. This iterative process highlights the importance of public participation in U.S. trade enforcement policy.
This procedure serves as a proactive channel for affected parties to influence tariff implementation and shape policy outcomes.
The International Emergency Economic Powers Act (IEEPA)
In contrast to the structured, investigatory process established under Section 301, the International Emergency Economic Powers Act (IEEPA) grants the president broad authority to regulate imports and other economic activities in response to national emergencies. Enacted in 1977, 50 U.S. Code § 1701 of the IEEPA enables the president to impose tariffs, sanctions, and other trade restrictions when faced with an “unusual and extraordinary threat” to the national security, foreign policy, or economy of the United States.
On April 2, 2025, President Trump invoked the IEEPA in Executive Order 14257 to declare a national emergency arising from what he characterized as “persistent and harmful annual U.S. goods trade deficits.” The administration cited a lack of reciprocity in global trade relationships and predatory foreign policies as justification for sweeping changes in the U.S. tariff regime. Following the declaration, several adjustments were made to existing tariff rates, the list of affected countries, and the scope of covered goods.
Unlike Section 301, actions taken under IEEPA do not require an evidentiary investigation or public comment period. However, they are subject to judicial review and have been the focus of considerable litigation, with plaintiffs challenging the factual basis and legality of the declared emergency. Courts have begun scrutinizing whether the IEEPA framework permits such expansive use of tariff authority absent a clear and imminent threat, and further rulings may clarify the limits of presidential discretion under this statute.
Tariff preferences, exemptions, and trade agreements
While most imported goods are subject to tariffs under the HTS, various trade agreements and development programs offer exemptions or preferential treatment to certain products and countries.
One such program is the African Growth and Opportunity Act (AGOA), enacted in 2000. AGOA allows for tariff-free access to the U.S. market for over 6,800 product categories from eligible Sub-Saharan African countries. To qualify, participating nations must meet a series of criteria, including adherence to the rule of law, democratic governance, protection of human rights, and efforts to eliminate barriers to U.S. investment and trade. As of 2025, thirty-two countries remain eligible, with South Africa being the largest beneficiary, particularly through automobile exports. However, the AGOA program is currently scheduled to expire in September 2025, and its future remains uncertain pending congressional action.
Another major trade agreement is the United States–Mexico–Canada Agreement (USMCA), which took effect in July 2020 as a successor to the North American Free Trade Agreement (NAFTA). Under USMCA, most goods traded between the U.S., Mexico, and Canada continue to enjoy duty-free treatment, provided they meet strict rules of origin requirements. These rules stipulate that products must be primarily manufactured or sourced within the member countries. Determining eligibility, however, can become complicated for products composed of global components or subject to variable manufacturing processes.
Current litigation
In April 2025, President Trump issued a declaration of national emergency, citing the ongoing U.S. trade deficit and lack of reciprocal trade practices as threats to national security and the economy. Pursuant to IEEPA, a series of tariffs were introduced or increased on products from various countries. This move has been the subject of significant legal scrutiny.
Several cases have been filed. Litigants have generally argued that IEEPA does not authorize the imposition of tariffs and even if it did, that no genuine national emergency exists to justify such measures. In one court’s response, the U.S. Court of International Trade (CIT) held that if the president wants to address a trade deficit through tariffs, the president already has the tariff authority specific to balance-of-payment issues provided in Section 122 of the Trade Act of 1974—not IEEPA. The Federal Circuit stayed the CIT’s nationwide injunction pending the appeal that was subsequently filed. On August 29, the Federal Circuit affirmed the CIT’s holding that the reciprocal tariffs exceeded the president’s authority. Again, the administration has appealed the case and requested that the Supreme Court make a final ruling. The eventual outcome of the case may reshape the legal boundaries of presidential authority in trade matters.
Who bears the cost of tariffs?
Contrary to common perception, tariffs are not paid by foreign exporters or governments. The responsibility for payment lies with the importer of record, which may be the brand owner, distributor, or even the final customer depending on the nature of the supply chain. The importer is responsible for the cargo declaration before the goods are shipped. Once goods arrive at port, the goods are held by CBP. The importer of record then fills then the relevant CBP entry forms for customs release. As such, where there is significant risk to an inexperienced importer, retaining a customs broker to assist with the import paperwork is recommended.
Tariffs are typically paid upon customs clearance at the port of entry. In cases where goods are routed to bonded warehouses, duties may be deferred until the products are released into U.S. commerce. The contractual terms between buyer and seller are often defined by INCOTERMS, which further clarify who is liable for tariffs and at what stage. For example, under FOB (Free on Board) terms, the buyer assumes responsibility for tariffs once the goods are loaded for shipping. Under DDP (Delivered Duty Paid) terms, the seller takes on the full burden, including import duties and customs clearance. EXW (Ex Works) places the maximum responsibility on the buyer, who must arrange and finance all aspects of the transport and importation process, including tariffs.
Mitigation strategies for importers
While tariffs are often unavoidable, businesses may implement several strategies to reduce their financial impact.
One such approach is the First Sale Rule, which permits the importer to declare the customs value based on the original sale between the manufacturer and the middleman, rather than the final resale price. By using the lower, initial transaction value, the importer can reduce the assessed tariff.
Another option is tariff engineering, where products are designed or modified to qualify for lower-duty classifications. This may involve changing the composition, assembly, or origin of the goods. For instance, importing parts separately or avoiding specific finishes can lead to reclassification under a more favorable duty rate.
Companies may also take advantage of Foreign Trade Zones. These designated areas allow goods to be imported, stored, and even assembled without incurring customs duties until they enter U.S. commerce. If the goods are ultimately re-exported or destroyed, no duties are paid at all.
Bonded warehouses offer a similar benefit by permitting duty-free storage of goods for up to five years. This can be useful for products with uncertain demand or longer distribution timelines.
Lastly, businesses may be eligible for duty drawbacks, which are refunds on duties paid for goods that are subsequently exported, destroyed, or returned. Several types of drawbacks exist, including direct identification manufacturing, substitution manufacturing, unused merchandise, and non-conforming goods. Depending on the category, companies may recover up to 99 percent of the duties initially paid.
Conclusion
In the modern global economy, tariffs are more than just taxes—they are instruments of economic strategy, tools of diplomacy, and mechanisms for enforcing trade policy. Navigating the U.S. tariff system requires a nuanced understanding of product classification, valuation, legal authority, and available exemptions or mitigation strategies. As international trade continues to evolve amid shifting geopolitical and economic conditions, businesses and policymakers must remain vigilant, informed, and adaptive in their approach to tariffs. ♦
