What is a tariff and who has to pay it?

What is a tariff and who has to pay it?

It has finally happened: President Donald Trump has kept his promise and imposed significant tariffs on the US's three largest trading partners: Mexico, China and Canada.

Background of the tariffs

Last year, these three countries exported $1.4 trillion worth of goods to the United States, accounting for 40% of all imports, according to Commerce Department data.

Details about customs duties

Effective immediately, all goods from Mexico and Canada, with the exception of Canadian energy goods, are subject to a 25% tariff. Goods from China must pay a 20% tariff. Commerce Secretary Howard Lutnick said that the affected countries have threatened retaliatory tariffs on the USA on Wednesday again that there is scope for negotiations regarding tariffs on Mexican and Canadian products.

Impact on the US economy

The tariffs that Trump tied to cracking down on fentanyl smuggling into the U.S. could raise the price of goods significantly at a time when the economy is already unstable.

Who bears the costs of customs duties?

Trump and members of his administration have often dismissed concerns about additional costs for U.S. companies and claimed that foreign countries are paying the tariffs. However, this is not entirely correct.

What is an inch?

A tariff is a tax on goods imported from another country. This tax is usually set as a percentage of the value of the imported goods and can vary depending on the country of origin and type of products.

Who pays the tariffs?

U.S. companies that import goods pay the tariffs up front, contrary to Trump's claims that exporting countries cover the costs. Actual transactions occur at Customs and Border Protection's (CBP)-designated 328 ports of entry into the United States, including airports, railroads, roads, and ports.

At these entry points, CBP collects customs fees from domestic companies that import the products. These fees are calculated based on the classification of the goods and their origin, explains Ted Murphy, a Sidley Austin attorney who specializes in customs compliance issues.

Customs payment options

Many importers use this electronic payment system the government that automatically deducts customs duties from a designated bank account. Alternatively, the duties can also be paid once at the end of a month.

Consequences for exporting countries

Although Trump has a point when he says that other nations are paying the tariffs indirectly, it is important to note that companies that learn they have to spend more on imports from a particular country may decide to look for new suppliers or, in Trump's ideal world, to move production to the United States.

In any case, the economy of the country whose goods are subject to tariffs may suffer from loss of revenue, potentially leading to job losses. Exporting countries often do not simply accept tariffs without putting up a fight.