Understanding Import Taxes: How to Calculate, Pay, and Reduce Tariffs in the USA in 2023

Importing goods from other countries has become an increasingly popular way for businesses to source products at a reasonable cost. However, in addition to the product and shipping costs, import taxes must be considered. These taxes can be a significant expense, particularly for those importing products from China, where tariffs have risen due to the ongoing trade war between the United States and China.

The Sino-US trade war has resulted in substantial revenue for the U.S. government in tariff collections. According to data from the U.S. International Trade Commission, the U.S. government collected over $80 billion in tariffs on Chinese goods between 2018 and 2020. These tariffs have significantly impacted many industries, including agriculture and manufacturing.

In response to the U.S. tariffs, the Chinese government has imposed tariffs on U.S. goods, with rates ranging from 5% to 25%, which has significantly impacted many U.S. businesses and led to changes in supply chains and manufacturing processes.

As we enter 2023, it’s more important than ever for businesses to understand how to calculate, pay, and reduce import taxes to minimize their impact on budgets. This blog post will provide a comprehensive guide to understanding what import taxes are, who has to pay them, how they are calculated, and ways to reduce or exempt them. Additionally, we’ll explore the impact of the US-China trade war on import taxes and provide up-to-date statistics on trade volumes and tax collections.

What are tariffs and import duties?

The terms tariffs and import duties are sometimes used interchangeably, but there is a subtle distinction between the two. Tariffs are taxes the importing country’s government imposes on imported goods to make them more expensive and less competitive with domestic products. In contrast, import duty is a tax levied on goods imported into a country. The purpose of import duties is to raise government revenue and provide some degree of protection for domestic industries. While both tariffs and import duties are taxes, the difference lies in their intended goals and how they are implemented.

Do I have to pay import tax for my products?

When importing goods into the United States, it’s essential to understand the various taxes and fees that may be assessed. In addition to import taxes, you may also be required to pay customs duties and charges levied by the U.S. government on imported goods. The amount of customs duty charged will depend on various factors, including the type of goods, their value, and their country of origin.

It’s also worth noting that certain goods are exempt from import taxes and customs duties, such as particular agricultural products, medications, and goods imported for personal use. However, it’s vital to ensure that your interests meet the criteria for exemption before assuming you won’t be required to pay any fees.

Navigating the complex world of import taxes and customs duties can be challenging, which is why many importers choose to work with a reputable tax consultation agency. These agencies have the expertise and knowledge needed to accurately calculate import duties and tariff collections on specific products, helping to ensure that you comply with all relevant regulations and avoid potential penalties or fines.

In short, if you’re planning to import goods into the United States, you must be aware of the various applicable taxes and fees. Working with a reputable tax consultation agency can be a great way to ensure that you understand and comply with all relevant regulations and avoid potential complications or issues.

What Are Import Taxes and How Are They Calculated?

The CBP assigned a specific Harmonized Tariff Schedule (HTS) code to each imported product based on its characteristics and intended use. Each HTS code has a corresponding rate of duty that determines the amount of import tax payable. The duty rate varies depending on the product and can be anywhere from 0% to several hundred percent.

How to Calculate Import Duty?

A Step-by-Step Guide To calculate import duty, follow these steps,

• Get the Product HTS Code – Determine the HTS code of the product you want to import. You can find the code using the CBP’s online search tool or consulting a customs broker.
• Query Import Duties – Once you have the HTS code, you can check the rate of duty assigned to that code using CBP’s online search tool or consulting a customs broker.
• Check Whether Your Product Is on the 25% Tariff List – Due to the ongoing Sino-US trade war, certain Chinese products are subject to an additional 25% tariff. You can check whether your product is on the list using CBP’s online search tool.
• Case Study – Let’s say you want to import a shipment of leather wallets from China with a total value of $10,000. The HTS code for leather wallets is 4202.22.90, and the duty rate is 3.4%. Therefore, the import tax payable on this shipment would be $340.

How to Pay Import Tax? When Is a Customs Bond Required?

Once you have determined the amount of import duty you need, you can proceed with the payment process. The import duty is usually paid at the time of importation, and the payment must be made in U.S. dollars. You can pay the import duty in several ways, including:

• Electronic Payment – You can pay the import duty electronically using the Automated Clearing House (ACH) system. This system allows you to transfer funds directly from your bank account to U.S. Customs and Border Protection.
• Check or Money Order – You can also pay the import duty by check or money order. The check or money order must be made payable to U.S. Customs and Border Protection and sent to the appropriate address based on your location.
• Cash – You can pay in cash if the import duty amount is less than $10,000. You must pay the import duty at the port of entry, and a receipt will be provided to you.

Sometimes, a customs bond may be required to pay the import duty. A customs bond is a financial guarantee that ensures that the import duty and any other fees or charges related to the importation of goods will be paid. Customs bonds are required in the following situations,

• When the import duty amount is greater than $2,500.
• When the imported goods are subject to other federal agency requirements.
• When the imported goods are subject to quota or visa requirements.
• When the imported goods are subject to anti-dumping or countervailing duties.

If a customs bond is required, you can obtain one from a surety company that the U.S. Department of the Treasury authorizes. The cost of the customs bond will depend on the imported goods’ value and other factors.

Ways to Exempt and Reduce Tariffs

There are some ways to exempt or reduce import tariffs, despite the initial impression that they are unavoidable. Here are some options to consider,

• Check for Tariff Exemptions – Relevant authorities can determine whether your product meets certain requirements that would exempt it from tariffs. For instance, you can easily find many tariff-free scientific or medical-research-related products.
• Consider Free Trade Zones – The government designates free trade zones that exempt certain taxes and duties. If your product is imported into one of these zones, it may be exempt from a few or all import duties.
• Employ Tariff Mitigation Strategies – Strategies such as negotiating with suppliers to reduce the product’s price to offset the tariff cost or shifting the tariff burden onto consumers by raising prices can mitigate the impact of tariffs.
• Re-Classify Your Product – If you can re-classify your product under a different Harmonized Tariff Schedule (HTS) code, you can reduce the amount of import duty you need to pay. This option requires a thorough understanding of the HTS code system, so you should consult with a customs broker or import specialist.
• Check Country of Origin – Certain trade agreements offer preferential treatment to goods that originate from specific countries. For instance, the United States-Mexico-Canada Agreement (USMCA) provides preferential treatment to goods from one of the three countries.

It is important to note that these strategies may not work for all products or situations, and you should consult with a customs broker or import specialist before attempting to use them.

Looking to the Future

As the global economy continues to evolve, trade policies and import tariffs will likely continue to change. With the ongoing trade war between the United States and China, it is still being determined what the future holds for importers and exporters.

The U.S. has been ramping up its efforts to collect more import taxes in recent years. In 2022, the U.S. government collected $111.8 billion in customs duties, up from $93.8 billion in 2021. This increase is likely due to the ongoing trade war with China and other global trade tensions.

You may seek consultation from a reputed accounts firm and Chinese business verifying agency to comprehend all the aspects before signing a trade deal. It will help your business to meet all the legal requirements and reduce taxes to the best possible level.

Final Words

Import tariffs are essential for anyone involved in international trade, particularly between the United States and China. While they can add a particular cost to imported products, there are ways to mitigate their impact, including tariff exemptions, free trade zones, tariff mitigation strategies, re-classifying your product, and preferential treatment under certain trade agreements.

As trade policies evolve and change, importers and exporters must stay informed about the latest regulations and requirements. Consulting with a customs broker or import specialist can help you navigate the complex world of import tariffs and ensure that you comply with all relevant laws and regulations.