How Tariffs Work: What They Are, Who Sets Them, and Who Pays

What Is a Tariff?

A tariff is a tax imposed by a government on goods crossing its border, almost always on imports. In the United States, tariffs are collected by US Customs and Border Protection (CBP) when goods arrive at a port of entry, a seaport, airport, or land border crossing. The revenue goes to the US Treasury.

Tariffs serve two purposes: raising government revenue and protecting domestic industries from foreign competition by making imported goods more expensive. Historically, tariffs were the primary source of US federal revenue before the income tax was introduced in 1913. Today, they generate roughly $80–100 billion per year, a small fraction of federal revenue, but economically significant for affected industries.

Who Pays the Tariff?

This is perhaps the most commonly misunderstood aspect of tariffs: the US importer pays the tariff, not the foreign country or the foreign exporter. When a US retailer imports shoes from Vietnam, the retailer, not the Vietnamese factory, writes a check to US Customs. The Vietnamese exporter already received the agreed purchase price and is not directly affected by US tariff policy.

The foreign country "feels" tariffs only indirectly, through reduced demand for its exports if higher US prices cause consumers to buy less. In some cases, foreign exporters lower their prices to keep goods competitive, effectively absorbing part of the tariff themselves. But this depends on market conditions and is not automatic.

How Tariff Rates Are Set

Under the US Constitution, Congress has authority over tariffs. The US International Trade Commission (USITC) maintains the Harmonized Tariff Schedule (HTS) - the official legal document listing the duty rate for every import category. The HTS covers more than 18,000 tariff lines across 22 sections and 99 chapters.

Congress has delegated significant tariff authority to the President. Key statutes include:

Section 232 (Trade Expansion Act of 1962): Allows the President to impose tariffs to protect national security. Used for steel and aluminum tariffs.
Section 301 (Trade Act of 1974): Allows tariffs to counter unfair trade practices by foreign countries. Used extensively in US-China trade actions.
IEEPA (International Emergency Economic Powers Act): Broad presidential emergency powers over trade, invoked for broad tariff actions.
Trade Promotion Authority: Allows the President to negotiate trade agreements that Congress approves or rejects without amendment.

Types of Tariff Rates

The HTS lists several types of duty rates for each tariff line. The three main columns are:

Column	Who It Applies To	Typical Rate
General (MFN)	WTO member countries, most US trade partners	0–20%+ depending on product
Special	Countries with FTAs (Canada, Mexico, South Korea, etc.)	Often 0% (duty-free)
Column 2	Non-MFN countries (Cuba, North Korea)	Often very high (50–110%+)

Within the general rate, there are also ad valorem rates (a percentage of the customs value), specific rates (a fixed amount per unit, weight, or measure), and compound rates (a combination of both). Browse HTS chapters to see how rates vary by product type.

How Tariffs Reach Consumer Prices

After an importer pays a tariff, they must decide how much of the added cost to absorb versus pass on through higher prices. Several factors influence this decision:

Competition: If domestic alternatives exist, importers may absorb more of the cost to stay price-competitive. If imports have no substitute, the cost passes through more fully.
Margins: Businesses with thin margins have little capacity to absorb costs; those with higher margins can cushion more.
Duration: Short-term tariffs may be absorbed; long-term tariffs are more likely to embed in prices as contracts are renegotiated.
Substitution: Higher prices prompt consumers to switch to alternatives, domestic products, goods from untariffed countries, or forgone purchases entirely.

Academic studies have found that US tariffs introduced in 2018-2019 were passed through to consumer prices at rates approaching 100% for many product categories, meaning US consumers bore nearly the full cost. See the US Tariff Impact guide for which product categories are most affected.

Finding Tariff Rates on PlainTariff

PlainTariff covers the full USITC HTS 2026 Basic Edition. To find the rate for a specific product:

Use the search tool to search by product name or partial HTS code.
Browse by section or chapter to find the relevant product category.
Check our guide on how to read HTS codes to understand the classification structure.

Worked Example: Steel vs Aluminum Tariff Impact

Consider two import scenarios to illustrate how tariff structure affects total landed cost:

Factor	Steel Beams (25,000 kg)	Aluminum Sheets (10,000 kg)
Customs Value	$50,000	$80,000
Base HTS Rate	0% (Free)	0% (Free)
Section 232 Duty	25%	10%
Additional Duty Amount	$12,500	$8,000
MPF (0.3464%)	$173.20	$277.12
Total Landed Cost	$62,673.20	$88,277.12
Effective Tariff Rate	25.3%	10.3%

Both steel and aluminum have a base HTS rate of Free, the duty burden comes entirely from Section 232 national security tariffs. The steel import faces an effective rate of 25.3% (including fees), while aluminum faces 10.3%. The lesson: the HTS base rate alone tells you nothing when Section 232 or Section 301 duties apply. You must check Chapter 99 for additional duties.

Tariff Pass-Through by Product Category

Academic research from the Peterson Institute and the National Bureau of Economic Research has measured how much of the 2018-2019 US tariff increases were passed through to consumer prices. The pass-through rate varies significantly by product category and competitive dynamics:

Category	Tariff Increase	Pass-Through Rate	Consumer Impact
Washing Machines	20%–50%	80%–100%	$86–$215 per unit
Steel Products	25%	50%–75%	$3.1B annual consumer cost
Electronics	10%–25%	70%–95%	$32–$78 per laptop
Agricultural Products	5%–25%	60%–85%	$0.02–$0.08 per food dollar

Tariff Revenue vs Consumer Cost

An important economic insight: the consumer cost of tariffs often exceeds the revenue they generate. This happens because tariffs also cause deadweight loss, consumers who would have bought the product at the pre-tariff price do not buy at the higher price, and that lost economic activity benefits no one. The US Treasury collected approximately $80B in tariff revenue in 2024, but estimated total consumer cost was $1,200–$2,400 per household, meaning consumers paid $3 to $6 in higher prices for every $1 collected in tariff revenue.

Using Free Trade Agreements to Reduce Duties

The US maintains free trade agreements with 20 countries. Products qualifying under an FTA enter at the Special rate, often Free. Qualification requires meeting rules of origin, which specify that a minimum percentage of the product's value must originate in the FTA partner country. For example, under USMCA, an automobile must have 75% North American content (up from 62.5% under NAFTA) to qualify for duty-free treatment. Use PlainTariff's chapter browser to check Special rates for any HTS line.

Frequently Asked Questions

Who actually pays a tariff, the foreign country or the US importer?

The US importer pays the tariff, not the foreign country. When goods arrive at a US port of entry, US Customs and Border Protection collects the duty from the American company or individual importing the goods. The foreign seller typically receives their agreed price. The importer then decides how much of that extra cost to absorb versus pass on to customers through higher prices.

How are tariff rates set in the United States?

Tariff rates are set through federal law, primarily the Tariff Act of 1930 and subsequent trade legislation. The US International Trade Commission (USITC) publishes the Harmonized Tariff Schedule (HTS), which lists the duty rate for every import category. Congress has broad authority over tariffs, but it has delegated significant authority to the President under laws like Section 232 (national security) and Section 301 (unfair trade practices) to impose or modify tariffs.

What is the difference between ad valorem and specific tariffs?

An ad valorem tariff is calculated as a percentage of the imported good's customs value, for example, "5% of the invoice value." A specific tariff is a fixed amount per unit, for example, "$0.52 per kilogram." Many HTS entries use compound rates, combining both: for example, "17.5% plus $0.10 per kg." Ad valorem rates automatically scale with price; specific rates do not, so inflation erodes their real impact over time.

How do tariffs affect consumer prices?

Tariffs raise the cost of imported goods, and importers typically pass some or all of that cost to consumers as higher retail prices. The extent of pass-through depends on market competition: if domestic alternatives exist, importers may absorb more of the cost to stay competitive. If a product has no domestic substitute, the full tariff often appears in store prices. Studies of recent US tariff actions have found pass-through rates ranging from 50% to nearly 100% for affected consumer goods.

What is the "general rate" of duty on the HTS?

The general rate (also called the MFN, Most Favored Nation, rate) is the standard tariff applied to imports from countries the US trades with on normal terms. The US extends MFN rates to all World Trade Organization (WTO) members, which covers most of its trading partners. Special, lower rates apply to countries with free trade agreements (like Canada, Mexico, and South Korea). Higher rates or additional duties may apply to specific countries under special trade actions.

Can tariffs be avoided legally?

Yes, through several legal mechanisms. Free Trade Agreements (FTAs) eliminate or reduce duties for qualifying goods from partner countries. The Generalized System of Preferences (GSP) offers duty-free treatment for certain imports from developing countries. Goods that are manufactured partly in the US may qualify for reduced tariffs on the foreign-content portion. Bonded warehouses and Foreign Trade Zones (FTZs) allow importers to defer or avoid duties under specific circumstances.

Sources

U.S. International Trade Commission, Harmonized Tariff Schedule 2026 Basic Edition
U.S. Customs and Border Protection, Import process and duty collection
Congressional Research Service, Tariff authority and trade law overview
Peterson Institute for International Economics, Tariff pass-through research

This content is for general informational purposes only and does not constitute legal or trade compliance advice. Tariff classifications and rates change frequently. Always verify current rates with US Customs and Border Protection or a licensed customs broker before making import decisions.

Sources & data notes

The figures in this guide come from two public datasets: the U.S. International Trade Commission’s Harmonized Tariff Schedule (HTS) for duty rates and classifications, and the FAO FAOSTAT trade database for agricultural import and export flows. Both are queried directly, so the numbers here match the listing and detail pages elsewhere on PlainTariff.

A few limits worth knowing: tariff rates can change between USITC revisions – Section 301 and 232 actions, anti-dumping and countervailing duties – so always confirm a current rate at hts.usitc.gov before acting on it. FAO trade values lag one to two years behind the calendar date and are converted from FAO’s 1,000-USD reporting units. Where a number is illustrative rather than queried from the data, it is labeled as an example.