Import Duty

An import duty (also called customs duty, tariff, or import tariff) is a tax imposed by a government on goods entering the country from abroad. Import duties serve two primary purposes: generating government revenue and protecting domestic industries from foreign competition. The World Trade Organization (WTO) governs how member countries may apply tariffs, with most countries bound to maximum tariff rates through WTO schedules and bilateral or multilateral free trade agreements.

Types of Import Duties

Ad valorem duty: Calculated as a percentage of the goods' declared customs value. The most common type. Example: a 10% ad valorem duty on $5,000 worth of furniture = $500 in duty.

Specific duty: A fixed amount per unit of quantity, regardless of value. Example: $0.50 per kg, or $1.20 per liter. Common for agricultural commodities.

Compound duty: A combination of ad valorem and specific. Example: 5% + $0.25 per kg.

Tariff-rate quota (TRQ): A two-tier tariff where imports within a quota quantity pay a lower duty rate, and imports above the quota pay a much higher "out-of-quota" rate. Common in agriculture (sugar, dairy, beef).

Anti-dumping duty (ADD): An additional duty on goods found to be sold below fair market value in the importing country.

Countervailing duty (CVD): An additional duty offsetting foreign government subsidies to exporters.

Section 301 tariffs: US-specific punitive tariffs applied to Chinese goods under the Trade Act of 1974, heavily expanded in 2018–2019 to cover over $370 billion of Chinese imports.

How Duty Is Calculated

Import duty is applied to the customs value of the goods — not the invoice value alone. The standard method is Transaction Value (the price actually paid for the goods), adjusted to include:

• Cost of packaging
• Assists (tooling, engineering provided by the buyer to the seller)
• Royalties and license fees
• Proceeds of resale accruing to the seller

Transportation and insurance costs to the country's border may or may not be included depending on the country's valuation method (CIF vs. FOB basis).

Duty Minimization Strategies

• Tariff engineering: Legally modifying a product's design, materials, or manufacturing process to qualify for a lower-duty classification
• FTA utilization: Qualifying goods as originating under applicable free trade agreements to receive preferential rates
• Duty drawback: Recovering duties paid on imported inputs when the finished product is exported
• Foreign Trade Zones (FTZs): US facilities where goods can be stored, processed, and re-exported without paying duties
• First Sale valuation: Using the first sale price in a multi-tier transaction (e.g., factory price rather than middleman price) as the customs value, reducing the duty base

In 2024, the average US MFN (Most Favored Nation) tariff rate was approximately 3.3%, but individual products can carry rates from 0% to 37.5% (and much higher under ADD/CVD or Section 301 orders).