If your business is involved in importing or exporting goods, you’ve likely come across the terms tariffs and duties. While they’re often used interchangeably, they’re not quite the same. Understanding the distinction is critical for anyone managing international trade, calculating landed costs, or ensuring customs compliance.
What is a Tariff?
The World Trade Organization defines tariffs as, “customs duties on merchandise imports. Levied either on an ad valorem basis (percentage of value) or on a specific basis (e.g. $7 per 100 kgs.).”
In simpler terms, a tariff is a tax imposed by a government on goods being imported into (and sometimes exported out of) a country. Tariffs play a major role in international trade strategy. They can protect domestic industries, encourage or discourage trade with specific countries, and generate revenue.
Common types of tariffs:
- Ad valorem tariffs: A percentage of the product’s value (e.g., 10% of the invoice value).
- Specific tariffs: A fixed dollar amount per unit (e.g., $0.25 per kilogram).
- Compound tariffs: A combination of both ad valorem and specific tariffs.
Tariffs are often used as tools in foreign policy and can change quickly depending on geopolitical conditions. They are often part of international agreements, such as the USMCA, which states the U.S. doesn’t impose tariffs on good from Canada or Mexico.
What is a Duty?
“A charge imposed on the import of goods. Duties are generally based on the value of the goods (ad valorem duties), some other factor, such as weight or quantity (specific duties), or a combination of value and other factors (compound duties).” – Code of Federal Regulations
From a broader perspective, a duty is a more general term that refers to any kind of tax or fee levied by a government on goods. Duties can apply to both international and domestic goods and cover more ground than tariffs. So while all tariffs are duties, not all duties are tariffs.
Types of duties include:
- Import duties: Applied when goods enter a country.
- Export duties: Charged on goods leaving the country (rare in the U.S.).
- Excise duties: Applied to specific goods like alcohol, tobacco, or fuel, regardless of where they’re made.
- Customs duties: A term often used interchangeably with import duties. Customs duties are import fees set by the government to control how freely products can enter a country. The rates are set based on the type of product (HTS Code – Harmonized Tariff Schedule) and where it is being imported from (Certificate of Origin). A tariff would fall under this category of duties.
Key Differences Between Tariffs and Duties
Tariffs are a type of duty specifically related to international trade. Duties, on the other hand, include a wider range of government-imposed taxes, both domestic and international. The terms are related, but not interchangeable. Here’s a quick side-by-side comparison to make the distinction clearer:
| Feature | Tariff | Duty |
| What It Is | A type of tax specifically on imports (and sometimes exports) | A broader term for any tax imposed on goods during import or export |
| Category | A subset of duties | An umbrella term that includes tariffs, excise, and other taxes |
| Used For | Trade policy, protecting domestic industries, or revenue | Revenue collection, product regulation, and compliance enforcement |
| Common Context | International trade agreements and customs classifications | Customs declarations, import/export paperwork, and tax calculations |
How Tariffs and Customs Duties Work Together in Trade
In global trade, tariffs and customs duties often show up side-by-side on customs declarations and import invoices. While they’re both forms of taxation on imported goods (and often used interchangeably), it's important to understand that tariffs are a type of customs duty and can be layered with other types of duties to significantly impact the total landed cost of a product.
Let’s say your company is importing consumer electronics into the United States. Here’s how duties might apply:
- Base Customs Duty: You may be required to pay a standard customs duty, such as 8%, depending on the product's classification in the Harmonized Tariff Schedule (HTS).
- Additional Tariffs: If the product is subject to special trade measures, like Section 301 tariffs on certain goods from China, additional percentage-based tariffs are layered on top of the base duty.
- Other Duties and Fees: Depending on the type of product, you could also face excise duties, anti-dumping duties, or merchandise processing fees (MPF), each calculated differently.
Why This Matters for Your Business
Understanding all the applicable tariffs and duties is essential for accurate landed cost calculations, budgeting, and compliance. These charges directly affect your company’s pricing strategy, inventory management, and supply chain planning. Businesses that fail to account for these costs may face unexpected expenses, reduced profit margins, or even disruptions in product availability.
Even a 1-2% shift in duty rates can have a major impact on your margins, especially when you’re moving high volumes or high-value products.
Navigate Global Supply Chain Challenges with Smart Warehousing
Understanding your obligations under U.S. and international customs law is no small feat, but it’s critical to keeping your supply chain efficient and cost-effective.
At Smart Warehousing, we work with experienced trade partners and customs experts to help our clients stay ahead of the curve. Contact us to learn how Smart Warehousing can support your international trade operations.
