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Tariffs have long been a significant aspect of the United States' trade policy, but the recent tariff announcements in the United States have brought the topic of tariffs to the forefront, making tariffs the source of much news reporting and discussion in the nearly three months since President Trump was inaugurated a second time. This article aims to provide a comprehensive overview of tariffs in the United States. Understanding what tariffs are, how they operate, and what tariffs are in effect are key to developing a strategy to minimize the financial risk associated with their implementation.

What is a tariff?

• Tariffs are taxes that governments impose on goods from other countries. Unlike income or sales taxes, tariffs vary by product and by the originating country. 

What is a duty?

• Duties are also taxes on imported goods, but they can be applied in different ways. While tariffs are usually a percentage of the item’s value, duties can be a flat fee or vary based on quantity.

How are a tariff and a duty related?

• Tariffs are a specific type of duty.

If the United States assesses a tariff on another country, who pays the tariff?

• Tariffs are paid by the importer of record (IOR). The IOR is a company that brings foreign goods into the US and is responsible for ensuring that the goods comply with all legal requirements.
• Tariffs are not paid by the country exporting the goods.
• Tariff exposure is based on the country of origin, not the country of export.

When is a tariff paid?

• Tariffs are paid at the time of customs clearance when goods are entered for consumption.

Who collects tariffs?

• The United States Customs and Border Protection collects tariffs.

How are tariffs calculated?

• An item must be classified according to the Harmonized Tariff Schedule of the US (HTSUS or HTS). The IOR is required to determine the HTS classification code and valuation of imported goods and indicate its determination on the invoice. The HTS is published, maintained, and updated by the International Trade Commission (ITC).
• The next step is to identify the rate of the duty by finding the HTS classification code in the HTS. That is the rate that is then applied to the imported item.

How is the value of goods determined?

• The IOR declares the value of the goods shipped. The determination of the declared value is based on customs-determined regulations. Once the determination is made, the value is included on the customers declaration form.
• Under-declaring (and over-declaring) values can lead to charges under the False Claims Act as well as other civil liabilities.

What about small dollar imports?

• In the US, we have what is called the de minimis exception, which allows items valued below $800 to enter the US without duties or tariffs. An IOR cannot evade duties by shipping goods in multiple shipments.
• As of May 2, 2025, the de minimis exception will be revoked for imports from China and Hong Kong. Further, goods from China and Hong Kong will be subject to a duty of 120% of the item’s value and a postal fee of $100.
• As of June 1, 2025, the postal fee will increase to $200.

Are tariffs assessed against goods already in transit?

• Executive Order 14257 (titled “Regulating Imports With a Reciprocal Tariff To Rectify Trade Practices That Contribute to Large and Persistent Annual United States Goods Trade Deficits”) states that goods loaded onto a vessel and en route to their destination before the effective date of the tariff, the tariff will not apply.

Can you delay or defer paying tariffs on imported goods?

• Yes, through the use of either customs bonded warehouses or foreign trade zones.

What are customs bonded warehouses?

• Customs bonded warehouse are buildings or other secured areas in which imported goods may be stored without payment of duty for up to 5 years from the date of importation.
• While in storage, bonded items are permitted to undergo cleaning, sorting, repacking, and some limited manufacturing.
• Only when goods are dispatched from the secure area of a bonded warehouse to their final destination do applicable tariffs apply.

What are foreign trade zones?

• Foreign-Trade Zones (FTZ) are secure areas under US Customs and Border Protection supervision that are generally considered outside Customs and Border Protection territory. FTZs are located in or near ports of entry.
• Foreign and domestic merchandise may be moved into FTZs for storage, exhibition, assembly, manufacturing, testing, and processing.
• The usual formal Customs and Border Protection entry procedures and payments of duties are not required on the imported goods unless and until it enters Customs and Border Protection territory for domestic consumption, at which point the importer generally has the choice of paying duties at the rate of either the original foreign materials or on the finished product, whichever is less.
• Unlike customs bonded warehouses, goods can be kept in FTZs indefinitely. However, imported goods impacted by the IEEPA and Section 232 tariffs (see below for a description of each of these tariffs) are admitted under privileged status, so imports that go through “substantial transformation” must still pay a tariff, even if stored in an FTZ.

Can you avoid tariffs by having items shipped to a neighboring country and then going over the border to get them?

• When you eventually cross the border back into the United States with the imported goods, you must declare what you are bringing into the country. At that point, you would then be assessed applicable tariffs based on the country of origin of the imported goods. It is important to understand that tariffs are assessed based on the country of origin, not country of export. Thus, if a company travels across the US-Canadian border with any goods, tariffs will be assessed at the rate applicable to the country of origin, not at the rate applicable to goods imported from Canada.

If imported goods are being shipped from one foreign country to another, but stop in the United States en route, are tariffs applied?

• When goods arrive at a US port or border, they can be placed “in-bond” instead of going through the full customs process. This means the shipment is under customs supervision but hasn’t officially been entered for consumption. 
• In-bond shipping allows goods to be transported through different countries without paying import duties at each border crossing. Instead, customs duties are deferred until the final destination.

What tariffs are currently in place in the United States?

• Section 301 tariffs: Since 2019, there has been a tariff on most imported of goods of Chinese origin. These are sometimes referred to as Section 301 tariffs, a reference to Section 301 of the Trade Act of 1974. Originally there were four different lists established, with tariffs ranging from 7.5% to 25%. These tariffs were revisited in 2024 and increases were proposed, some as high as 100%, but most goods remain at 25%.

• IEEPA tariffs: In February and March of 2025, these tariffs were announced under the authority of the International Emergency Economic Powers Act (IEEPA) and they directly impact goods imported from Mexico, Canada, and China. This implementation resulted in a 25% additional tariff on imports from Canada and Mexico, with the exception of energy resources from Canada which have a 10% tariff, and a 20% additional tariff on imports from China. IEEPA tariffs are not appliable to US-Mexico-Canada Agreement (USMCA) qualifying goods, which are goods that are wholly grown, produced or manufactured in the US, Mexico, or Canada. There multiple lawsuits challenging the authority of the President to implement IEEPA tariffs.

• Section 232 tariffs: Using Section 232 of the Trade Expansion Act of 1962, in February 2025, the Trump administration announced a 25% tariff on steel and aluminum, as well as their derivatives. Items subject to Section 232 tariffs are exempt from the recently announced reciprocal tariffs. However, these items are still subject to the IEEPA tariffs and Section 301 tariffs. Please note that there is a process for domestic steel and aluminum suppliers to nominate new derivatives to fall within the purview of Section 232. So while only those products listed in Proclamations 10895 and 10896 and are subject to Section 232 tariffs, new products and derivatives can be added.

• Reciprocal tariffs: In early April, the administration announced reciprocal tariffs against all countries. Amounts varied based on the country, but all countries were to be subject to a minimum 10% tariff. Asian nations were set to face the worst of the brunt, with Cambodia facing a tax rate at 49% and Vietnam at 46%. On April 9, 2025, the Trump administration delayed the implementation of the reciprocal tariffs for 90 days, except that the universal 10% tariff remains in place for all countries, except China, which has been hit with a tariff of (as of writing) 145%. Last week, the Trump administration announced an exemption for smartphones and computers, but it is unclear how long that exemption will be in place.

• Many of the tariffs are cumulative. Take China for example. Depending on the goods, imports from China could be subjected to a 145% reciprocal tariff, a 20% IEEPA tariff, and up to 100% Section 301 tariff, or a 265% total tariff.

For those involved in the construction industry, understanding tariffs is essential for making informed decisions and strategic planning. By staying updated on tariff changes and their implications, businesses can better manage their supply chains, negotiate contracts, and maintain competitive pricing. As the global economy evolves, the careful consideration of tariffs will remain vital in ensuring successful project outcomes and fostering a stable trade environment.

Please contact Lauren Triebenbach, leader of the Michael Best Construction Law team, for further assistance.

Michael Best and Michael Best Strategies’ trade teams provide services on trade compliance, advocacy, and regular intelligence on tariff actions, challenges and opportunities for our clients. For additional trade alerts, please visit here.