What Are Tariffs?
A quick search of the word "tariffs" in the Miriam-Webster Dictionary would supply you with this definition: a schedule of duties imposed by a government on imported [or] exported goods. In more simple terms, a tariff is a tax by a country's government on goods. While simple to understand, the purpose behind tariffs can range from protectionist policies to international politics to a bit of everything.
In the United States, the Customs and Border Protection (CBP) enforces a tariff schedule called the Harmonized Tariff Schedule of the United States (HTSUS). In the HTSUS, you can find the tariff rates for goods imported into the United States. If an imported good has an applicable tariff applied to it, then customs duties will be charged for the goods. Failure to pay the duties would lead to additional fees and/or the imported goods being detained until all fees are cleared. With how complicated clearing customs can be, it's no wonder a whole industry has sprung up around it to deal with this issue.
Where Did Tariffs Come From?
The origin of tariffs can first be traced way back in recorded history to the Ancient Greeks when they would place a levy of two percent on goods. It's also safe to assume many other civilizations before and after the Ancient Greeks employed similar levies on goods.
However, since tariffs are a more modern invention, the British used them in their protectionist policies at the start of the 18th century. Later, the American colonies levied their own tariffs on top of British tariffs before the Tariff of 1789 was introduced after the establishment of the United States. Now, almost every major government has some form of tariff on imported and exported goods as global trade flourishes.
What Types of Tariffs Are There?
There are four main types of tariffs that are commonly used by governments. These four are: ad valorem tariffs, specific tariffs, compound tariffs, and tariff-rate quota.
Ad Valorem Tariff: "Ad valorem" is Latin for "according to value" which means this type of tariff is levied based on a percentage of the value of the goods. An example is if the United States levied a 15% tariff on cheese imports from France. A $100 block of French cheese would then cost $115 for American consumers.
Specific Tariff: This type of tariff is levied as a fixed fee on each unit of goods imported. For example, the United States could levy a tariff of $3 for each pair of pants that is imported into the country.
Compound Tariff: This type of tariff is a combination of the specific tariff and the ad valorem tariff. An example of this is if the United States levied a tariff of $1 for each pair of shoes as well as a 10% tariff on the value of the shoes. So a $10 pair of shoes would then cost $12 after the tariffs are applied.
Tariff-Rate Quota: This is a combination of two policies in tariffs and quotas. A set tariff would be imposed on goods up to a certain quota which could then increase or decrease the tariff. For example, the United States levies a tariff of $5 for bags up to 1000 bags. After 1000 bags, the tariffs increase by an additional $2 for each bag.
Overall, most tariffs would fall under one of these four categories. The type of tariff that is being levied would also depend on the type of goods and the trade agreements between countries. In more complicated scenarios, it's worth having a professional look over the documents to save time and money.
How To Deal With Tariffs?
Tariffs are often complicated due to each country having its own tariff schedule and trade agreements with other countries. In the United States, you can look up your goods' potential tariffs in the HTSUS. After identifying the category the goods are under, then you can fill out the information in your import/export documents that will be used for clearing customs. This can be done electronically through the Custom Border Protection’s Automated Manifest System (AMS). Any tariffs or customs duties owed must be paid before the end of your CBP processing.
Professionals like custom brokers can help you with the customs clearing process and make sure your documents are all in order to avoid additional fees and delays. Additionally, hiring a freight forwarder to handle your goods may be a simpler and more cost-effective solution. As logistic professionals, freight forwarders are trained to deliver shipments safely and on time, clearing multiple hurdles like clearing customs. Their partnerships with carriers and customs brokers mean you can receive preferential rates when going through a freight forwarder, ultimately saving you time and money.
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