If you import goods into the United States, you will encounter three terms that are often used interchangeably but mean different things: duty, tariff, and tax. Each one affects how much you pay at customs, who collects it, and why it exists. Understanding the difference is not just a compliance requirement - it directly affects your landed cost, your cash flow, and your pricing.
This guide explains what each term means, how they are calculated, and how they interact when goods enter the US.
Duty vs Tariff vs Tax: Key Differences at a Glance
| Term | What It Is | Who Sets It | Applied To | Primary Purpose |
|---|---|---|---|---|
| Duty | A fee charged on imported or exported goods | Customs authority (CBP in the US) | Specific goods crossing the border | Revenue and trade regulation |
| Tariff | A tax specifically on imported goods, often used as an economic or political tool | Federal government | Imported goods by category or country of origin | Protect domestic industries, influence trade policy |
| Tax | A broader financial obligation levied by government on income, goods, or services | Federal, state, or local government | Individuals, businesses, or goods at various stages | Government revenue funding |
What Is a Duty?
A duty is a fee charged by a government on goods that are imported into or exported from a country. In the United States, import duties are administered by US Customs and Border Protection (CBP) and are based on the Harmonized Tariff Schedule (HTS).
The duty rate applied to any shipment depends on three factors:
- The HTS code - the classification number assigned to the product based on what it is
- The customs value - the total CIF value of the goods (cost + insurance + freight)
- The country of origin - where the goods were manufactured, not where they were shipped from
Example: If you import $10,000 worth of goods with a 5% duty rate, your duty is $500. That $500 is paid to CBP before your goods are released.
Duties are also referred to as customs duties or import duties. Common types include:
- Ad valorem duty - a percentage of the customs value (most common)
- Specific duty - a fixed amount per unit (e.g., $2 per kilogram)
- Compound duty - a combination of both
What Is a Tariff?
A tariff is a specific type of tax imposed by the government on imported goods. While duty refers to the charge applied at the transaction level, tariff refers to the broader schedule or policy that sets those rates.
In practice, when people talk about US tariffs - particularly in the context of US-China trade or Section 301 tariffs - they are referring to government-imposed trade measures that increase the cost of imported goods from specific countries or product categories.
Key types of tariffs:
- Ad valorem tariff - a percentage of the imported good's value (e.g., 10% on electronics)
- Specific tariff - a fixed charge per unit regardless of value (e.g., $15 per pair of shoes)
- Compound tariff - a combination of ad valorem and specific (e.g., 5% plus $3 per unit)
- Protective tariff - designed to make imported goods more expensive to protect domestic producers
- Retaliatory tariff - imposed in response to another country's trade actions
The US has significantly expanded its tariff structure since 2018, with additional Section 301 tariffs on Chinese goods, Section 232 tariffs on steel and aluminium, and new reciprocal tariffs introduced in 2025. For current US tariff rates by country, refer to the official USITC Harmonized Tariff Schedule.
What Is a Tax in International Trade?
Tax is the broadest of the three terms. In international trade, the taxes most commonly encountered are:
- Value Added Tax (VAT) - applied in most countries outside the US at each stage of the supply chain. Importers into the EU, UK, Canada, and many other markets pay VAT on arrival.
- Goods and Services Tax (GST) - similar to VAT, used in Australia, India, Canada, and other countries.
- Excise tax - applied to specific goods such as alcohol, tobacco, and fuel, regardless of whether they are imported or domestically produced.
The United States does not have a federal VAT or GST. However, importers may face state-level sales taxes depending on how goods are sold and where buyers are located after the goods clear customs.
Duty vs Tariff: What Is the Actual Difference?
| Duty | Tariff | |
|---|---|---|
| Definition | The actual charge paid on a specific shipment | The schedule or policy that sets the rate |
| Level | Transaction-level (applied per shipment) | Policy-level (set by government) |
| Example | Paying $500 duty on a $10,000 shipment | The 25% Section 301 tariff rate on Chinese goods |
| Who pays | The importer of record | N/A - the tariff sets the rate, the duty is what is paid |
In simple terms: the tariff is the rule, the duty is the payment.
Duty vs Tax: What Is the Actual Difference?
| Duty | Tax | |
|---|---|---|
| Scope | Applies specifically to goods crossing borders | Applies broadly to income, goods, services, and more |
| Who collects | Customs authority (CBP in the US) | Federal, state, or local tax authority (IRS, state revenue departments) |
| Trigger | Movement of goods across a border | Income earned, goods sold, value added, etc. |
| Example | 5% customs duty on imported machinery | 10% VAT on goods sold in the EU |
How to Calculate Duties, Tariffs, and Taxes for US Imports
For goods imported into the United States, the calculation process follows these steps:
Step 1: Classify your goods Identify the correct HTS code for your product. The HTS code determines your base duty rate. You can look up codes at the USITC website or use a licensed customs broker.
Step 2: Determine customs value Calculate the CIF value - the cost of the goods plus international freight and insurance to the US port of entry.
Step 3: Apply the duty rate Multiply the customs value by the applicable duty rate from the HTS schedule.
Step 4: Check for additional tariffs Determine whether Section 301, Section 232, or other additional tariffs apply based on your product's HTS code and country of origin. These are added on top of the base duty rate.
Step 5: Calculate total landed cost Add duty, additional tariffs, and any applicable fees (such as the Merchandise Processing Fee and Harbor Maintenance Fee) to your product cost to arrive at your total landed cost.
Example:
- CIF value: $10,000
- Base duty rate: 5% = $500
- Section 301 additional tariff (Chinese origin): 25% = $2,500
- Merchandise Processing Fee (0.3464%): $34.64
- Total customs charges: $3,034.64
This is why country of origin matters so much for US importers - goods from China carry significantly higher total duty burdens than identical goods from countries with no additional tariffs.
How Duties and Tariffs Affect Your Cash Flow
For US importers, duties and tariffs must be paid before goods are released by CBP. This means you are paying a significant upfront cost - often 5-35% of your shipment value - before you have sold a single unit or collected a dollar from your customers.
This is one of the most common cash flow pressure points for small and mid-sized importers. Working capital financing solutions such as vendor financing and purchase order financing are specifically designed to bridge this gap - covering supplier payments and import costs so importers do not have to fund the full duty burden from their own cash reserves while waiting for customer payments.
Frequently Asked Questions
What is the difference between duty and tariff?
A tariff is the government-set policy or rate schedule that determines how much should be charged on imported goods. A duty is the actual payment made by the importer when a shipment crosses the border. The tariff sets the rule, the duty is what you pay.
What is the difference between duty and tax?
Duty is a specific charge on goods crossing an international border, collected by customs authorities. Tax is a broader term covering government charges on income, sales, value added, and more. All duties are a form of tax, but not all taxes are duties.
Who pays import duties in the US?
The importer of record - the individual or company responsible for the shipment - pays import duties to US Customs and Border Protection. Depending on the trade terms agreed with the seller, the cost may be borne by the buyer (as in DAP terms) or included in the total price paid to the seller (as in DDP terms).
How do I find the duty rate for my product?
Look up your product's HTS code in the US Harmonized Tariff Schedule at the USITC website. The HTS schedule shows the base duty rate as well as any applicable additional tariffs by country of origin.
Are tariffs the same as Section 301 tariffs?
Section 301 tariffs are a specific type of additional tariff imposed by the US government on goods from China under Section 301 of the Trade Act of 1974. They are in addition to the standard duty rates in the HTS schedule, not a replacement for them. Many Chinese-origin goods carry both a base duty rate and a Section 301 additional tariff.
Can duties and tariffs be reduced or avoided legally?
Yes. Free Trade Agreements such as USMCA can eliminate or reduce duties on goods originating in partner countries. Duty drawback allows importers to recover duties paid on goods that are later exported. Foreign Trade Zones and bonded warehouses also offer options to defer or reduce duty payments.
How do duties and tariffs affect import costs?
Duties and tariffs are paid before goods are released by US CBP and must be factored into your total landed cost. For goods from China, combined base duties and Section 301 tariffs can add 25-35% to the cost of a shipment. This significantly affects pricing, margins, and cash flow for importers.
