Understanding Import Duties: Their Purpose and Impact

With tariffs increasingly in the news these days, our clients are seeing a potential impact on their import duties. These government-levied charges can transform profitable ventures into break-even battles overnight for thousands of importers, exporters, and everyone in between.

At $111.8 billion in U.S. import duties collected in 2022, these fees represent more than just numbers on Customs forms – they’re crucial factors that shape business decisions, influence consumer prices, and even spark international trade wars. Yet many businesses still treat them as afterthoughts, often at their own expense.

CITTA specializes in duty drawback programs that help you recoup some of those expenses, so you can make better business decisions.

Let’s cut through the real-world complexity of import duties, so you can better understand them and transform your approach to international trade. From basic principles to strategic insights, you'll discover why these fees matter and how to navigate them effectively.

What are Import Duties?

Import duties are government-mandated fees charged when goods cross international borders. While often used interchangeably with terms like customs duties, tariffs, or import taxes, these charges serve as your product's price of admission into a new country.

Think of them as an international sales tax -- but with a twist. Unlike standard sales tax, import duties vary dramatically based on what you're importing, where it's coming from, and current trade policies. A cotton shirt from Bangladesh might face a 16.5% duty rate, while the same shirt from Vietnam could cost significantly more or less, depending on current trade agreements.

Here's where I find many importers and organizations get caught: These duties don't just apply to the product's purchase price. They often include shipping costs, insurance fees, and other related charges. This "dutiable value" frequently surprises first-time importers who've budgeted based on product costs alone.

Why are Import Duties Imposed?

Governments worldwide enforce import duties for three primary reasons, each directly affecting your business operations and bottom line.

Protecting Domestic Industries

Governments often respond with protective duties when foreign products flood domestic markets at significantly lower prices. These measures, known as countervailing or anti-dumping duties (which are not eligible for duty drawback), help shield local manufacturers from losing market share to international competition. For example, duties on imported steel and aluminum help maintain the competitiveness of domestic producers while supporting local employment opportunities.

Revenue Generation

The U.S. collected $111.8 billion in import duties during 2022. While not the primary source of federal revenue, these duties provide funding for various government operations. For businesses, these fees aren't likely to disappear anytime soon, so a duty drawback program can offset these costs and any unknown increases in the future.

International Negotiations

In addition to using tariffs to remedy unfair trade practices and raise revenue, the Trump Administration has used tariffs — or the threat of tariffs — as a negotiating strategy to influence other countries to behave in a certain way. For business owners, this means staying alert to political developments that could affect product duty rates.

How are Import Duties Calculated?

Three key factors determine how much you'll pay in import duties, and understanding each one helps you better predict and plan for these costs.

Tariff Classification

Every product entering the U.S. needs a specific classification number under the Harmonized Tariff Schedule (HTS). This universal system determines the applicable duty rate for your goods. For exports, the U.S. uses a different system called Schedule B. If you're unsure about classification, CITTA works with a network of Customs brokers who excel at classification. They can guide your search for the correct HTS Code or apply for a Binding Ruling when necessary.

Customs Value

Your duty calculation starts with the customs value, which includes:

• The price paid for the goods

• Packing costs

• Selling commissions

• Royalty/license fees

• Transportation costs to the port of export

• Insurance costs

Important note: If your goods are valued under $800, they qualify for duty-free entry under the de minimis threshold.

Country of Origin

Trade agreements can significantly impact duty rates. For example, certain products may enter duty-free under the USMCA (formerly NAFTA). However, Customs authorities make final duty determinations in the importing country and may sometimes differ from initial estimates. The USMCA requires a joint review by July 2026 and agreement by all parties to continue. This review now looks poised to become more of a full-fledged renegotiation as President Donald Trump seeks to leverage the discussions to reshape North American trade, migration, and security, as well as address China’s growing influence in regional supply chains. 

Additional factors that can influence duties include:

• Import quotas

• Anti-dumping measures

• Environmental protection considerations

Impact of Import Duties

Import duties create ripple effects throughout the supply chain, influencing everything from sourcing decisions to consumer prices.

Business Cost Implications

When duties increase, businesses face tough choices. Some absorb the costs, cutting into their profit margins to maintain competitive pricing. Others pass these expenses to consumers, potentially risking market share. A less obvious impact is the additional working capital needed, as duties must be paid before goods clear customs.

Supply Chain Restructuring

Duties often prompt businesses to reevaluate their supply chains. Some companies diversify their sourcing across multiple countries to minimize duty exposure. Others relocate manufacturing operations or seek duty-free trade zones. These strategic shifts require significant investment but can yield long-term savings.

At CITTA, we show importers, exporters, and other organizations the possibility of a duty drawback program to recoup those import duties and bring capital back into the supply chain. It's important to note that duty drawback is only eligible if the goods are subsequently exported or destroyed.

Consumer Impact

Ultimately, import duties often translate to higher prices at the register. When duties rise, they can trigger inflation across entire product categories, affecting purchasing power and consumer behavior. With a duty drawback program in place before any new tariffs take hold, you’ll be able to stay ahead of the spending and potentially keep costs lower than competitors.

Conclusion

Import duties are far more than just another business expense—they're a critical factor in international trade that can make or break your profit margins. These government-mandated fees demand careful attention and strategic planning, from determining product costs to influencing sourcing strategies.

Understanding import duties gives you a competitive edge. Whether navigating complex tariff classifications, adapting to changing trade agreements, or seeking ways to optimize your duty exposure, knowledge of these mechanisms helps you make informed decisions that protect your bottom line.

Ready to transform your approach to import duties? CITTA Brokerage specializes in helping businesses like yours navigate Custom’s complexities and uncover hidden duty refund opportunities. Contact us today to learn how we can help you maximize your duty drawback potential.