Customs Duty is a tariff or tax imposed on goods when transported across international borders. The specific tariff rate applying to a good has to be paid to U.S. Customs and Border Protection at the time of the import.

As the world's largest import nation with an annual import volume of 3.2 trillion USD (2022), the U.S. is indispensable as import market for international businesses. With the Presidential Election uprising, the country’s import policies come under the media’s spotlight once more, with Donald Trump promising huge tax cuts financed by levitation of higher import tariffs in general, and with particularly higher tariffs on imports from China.

International and importing businesses require a fundamental and up to date understanding of the U.S. Customs Duty system to navigate the ever changing landscape of Customs tariffs and ideally find ways to minimize their own import costs by exploiting existing regulation.

The following article provides international and U.S. inbound businesses an overview of the tariff system and Customs regulations. It cannot provide an individual assessment nor legal advice for any particular request. We hope, nonetheless, to kick start your journey to create Customs efficiencies.

Determination and Calculation of Custom Duty Liability

In general, Customs duty fees are calculated “ad valorem”, by multiplying the specific duty tariff and the good’s particular value, by applying specific tariffs per quantity ($ per kg / oz.) or by compound tariffs combining both methods.

Valuation of a good is regularly performed by the “transaction valuation method” under the WTO Valuation Agreement (See Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade (GATT) 1994). As the most commonly used method, it is based on the price of the imported goods. In most cases, the so-called “Transaction Value” is determined by the price actually paid or payable for the imported merchandise, meaning the total payment for the actual product minus additional fees (“Adjustments”) for freight, transport insurance etc. Under specific circumstances, for example with related entities transferring goods in a cross-border transaction, other methods of valuation might apply to determine a comparable market value of the imported goods and to diminish the influence of business relations on the duty liability.

The applicable Customs duty tariffs depend on a variety of factors, especially the good’s origin country and contents. For example when importing clothing, the tariffs vary depending on the type, contents or fabric of a certain garment and if it is meant for children, women or men. The tariffs for each product are categorized and classified under the Harmonized Tariff System (HTS) in the HTS Schedule (See HTS Schedule at https://hts.usitc.gov/).

The Schedule is divided into 12 sections, each classifying different types of goods to be imported and applying individual tariffs to particular products. Different tariffs are applicable depending on whether the country of origin has “Most Favored Nation” trade status (which is the regular status of most nations except e.g. Russia or North Korea) or is a party of a Free Trade Agreement. In the latter case, importing might even be free of charge.

Examples of HTS Schedule classification:

• Your company belongs to the apparel industry and you wish to import clothing, in particular a men’s anorak, mainly consisting of cotton → Tariff No. 6101.20.00 10 applies with 15.9% custom duty for MFN countries (otherwise: 50%) or is free of charge under a Free Trade Agreement.
• Your company belongs to the food and beverage industry and you wish to import fresh apples and corn chips → Tariff No. 0808.10.00 applies for fresh apples, so the apples are free of duty charge coming from a MFN country (otherwise: 1.1¢/kg) AND Tariff No. 1905.90.90 30 applies for corn chips and similar crisp savory snack foods with a 4.5% duty rate for MFN countries (otherwise: 20%)
• Your company belongs to the agricultural sector and you wish to import cattle, inter alia for dairy purposes → Tariff No. 0102.29.20 applies for for dairy cows classifying them free of charge coming from a MTN country (otherwise: 6.6¢/kg) OR Tariff No. 0102.29.40 applies for all other purposes, e.g. slaughter, and applies a tariff of 1¢/kg for cattle from a MTN country (otherwise: 5.5¢/kg). Under a Free Trade Agreement, the import would be free of charge.

Options to Lower Import Duty Liabilities

As Customs duty may be a significant financial burden, compliance and strategy to lower costs might help reduce costs.

Further, import amounts with a total value of USD 800.00 and below (de minimis threshold), have no import charges.

Free Trade Agreement by Engineering: Adjusting your products import route could make you eligible for a Free Trade Agreement. The core of this exercise is to ensure that your goods comply with the “rules of origin” of the particular Free Trade Agreement.

In order to be eligible for the Free Trade Agreement treatment,

1. the product must be wholly obtained, meaning produced entirely, in the territory of one or more of the FTA countries.
2. the product must be a good produced exclusively originating materials, meaning none of the material can originate outside one of the FTA parties’ countries.
3. the product must qualify for preferential treatment as for its substantial transformation, with value added content of more than 35% of the good’s initial value within the Free Trade Agreement party (so-called 35% appraised value method, special regulations apply for Israel or Jordan).
4. the product has to include a certain percentage of regional value content (“RVC”) making it reach a certain level of Regional Value Content to benefit from the Free Trade Agreement as an originating good, in particular depending on the Free Trade Agreements regulations.
5. With regard to the HTS Schedule, also a Tariff Shift might help to qualify under the rules of origin. Transforming the good, might allow changing the HS classification of the non-originating components to the HS code of the final product (e.g., processing wood into furniture = change of HTS chapter). This type of tariff classification change shows that non-originating components have been sufficiently transformed in either the United States or FTA partner country(ies) to allow them to qualify for a preferential tariff under the FTA.

There are further combinations of (4) and (5) applied with further buildup or build down formulas and specific rules varying for each Free Trade Agreement. Global players benefit from the rules of applicable FTAs, for example Samsung from imports under the United States-Korea Free Trade Agreement (KORUS FTA). When trade sanctions were imposed by the U.S. in 2017, Apple moved many of its production facilities from China to Vietnam to still be eligible for imports from a Most Favored Nation (“MFN”) country (See Souring US-China Relations Threaten to Make Your iPhone More Expensive).
Also, Apple has initiated to reroute its products from formerly mainly China to other Asian countries, e.g. Vietnam or India, after the U.S.-China trade sanctions were imposed.

Tariff Engineering: Tariff Engineering may lower the duty charges by changing the product partially and along the HTS classifications. While at first glance, the classification in the HTS Schedule may seem to be set in stone, it can be very helpful to double-check if the classification is eligible for changing. The mechanism and effect are best understood with an example:

• HTS tariffs for clothing are influenced by the type of garment and the materials used, as well as they are meant for Women or Men. Changing the fabric content rates can make a specific garment applicable for lower duty fees, as for example, tariffs for cotton clothing are lower than for polyester. To determine the applicable tariff, it is inevitable to do well-founded research.

• By this method, Converse was able to let their imports be qualified as slippers instead of regular outdoor shoes by adding felt soles to its shoes. By this, the company managed to decline the applicable duty tariffs from around 37.5% to only 3% (See Here's Why Converse Sneakers Have Fuzzy Bottoms - Business Insider).

Reduction of Imported Value: Reducing the import value of your goods can help decrease the levied tariffs. Careful compliance can help determine the actual goods’ value as a calculation base. Therefore, deducting invoice charges unrelated to the product value, e.g. freight, insurance, port charges can have a direct impact on the imposed tariffs.

As it is a common misunderstanding, it is important to keep in mind the Customs value of a good is based upon the amount of money paid by the buyer to the seller including all costs for bringing the merchandise to the point of import and not the intended sales price. This method requires substantiated proof of the actual merchandise or product value by handing in invoices, contracts, bills or other evidence showing the additional payments to a third-party. If costs are estimated and not documented, U.S. Customs and Border Protection considers this a failure to exercise reasonable care on the part of the importer. It will disallow the deduction and the importer may face penalties.

First Sale: The “First Sale” strategy might further allow the use of a lower price as the foundation of calculating the payable fees. In a multi-tiered transaction, companies might be allowed to only pay customs on the “first” (earlier) sale in a series of multiple transactions. Therefore, the earlier sale has to be documented as a sale for exportation to the United States and the importer has to meet all other Customs requirements. A high level of transparency in a company’s supply chain is required to comply with the evidence requirements.

There are a number of further options to save money and to take control of your company’s cash flow and liquidity, for example by drawbacks or the use of Foreign Trade Zones, which are beyond the scope of this article and are therefore reserved for individual advice.

Balancing Tax Law and Customs Law

When engineering the value of imported goods, a business will have to consider tax law and reporting requirements applicable to the same transaction, in particular to the extent that the import value equals the taxable transfer price for income tax calculation. As Customs and Tax authorities use different methods to evaluate transactions, avoiding a negative financial outcome requires an interdisciplinary approach to assess each individual situation (See The Link Between Transfer Pricing and Customs Duties | BDO).

Conclusion: better stay in your local market?

As portrayed, the Customs situation is more complex than quickly and easily mastered and, above all, implemented. Identifying the particularly applicable calculation method and correct HTS classification for your goods can be a challenging task. Nevertheless, it provides the groundwork for economical performance optimization that can directly and largely impact costs and profits.

In general, we see clients benefit from the following considerations:

1. determine or review your goods’ classification under the HTS Schedule, as well as the applicable tariff,
2. review the correct valuation and (re-)evaluate your goods,
3. reconsider the invoice “Adjustments”,
4. check whether your goods qualify for preferential treatment under Free Trade Agreements or further trade exemptions, or if a general redirection to a Most Favored Nation (“MFN”) country would be useful,
5. and only then reconsider the other displayed reduction options such as Tariff Engineering.

As the best practice applicable may vary case-by-case, appropriate interdisciplinary consultation and advice by service providers, lawyers and accountants is essential, as negative consequences may result with respect to tax and corporate law. Following the right advice and business plan, the Customs situation can become a valuable tool in market competition and thus, hopefully, another reason to stay active in the international business.

Amidst the new turbulence surrounding international trade and the role tariffs play, this article aims to provides a resource in dynamic times and a follow up on our recent blog article on tariff engineering.

If your business relies on imported goods—from raw materials to finished products—it’s essential to reassess your tariff exposure immediately. Since November 2024, the Trump administration has significantly expanded tariffs affecting major U.S. trade partners.

This includes new or increased tariffs targeting worldwide imports as well as global counter tariffs against the US’ erratic tariffing actions. Further, the tariffs are flanked by regulatory enforcement by the U.S. Customs and Border Protection (“CBP”) has intensified, emphasizing documentation accuracy, tariff classification, and valuation compliance.

As we write and post this, this may, however, already have changed and likely will change in the near future. Here is a bulletin to keep you updated on the dynamic situation. This blog article is intended to provide a reminder on how to navigate this dynamic landscape.

Customs Enforcement and Regulatory Guidance

CBP is actively increasing enforcement efforts, prioritizing rigorous reviews of tariff classifications, origin documentation, and valuations. The January 2025 Harmonized Tariff Schedule (HTS) revisions introduced new classifications and duty rates affecting electronics, automotive components, and consumer goods, increasing compliance complexity. Importers using outdated classifications may face costly penalties and enforcement scrutiny.

To mitigate risks, businesses should:

• Conduct comprehensive classification reviews to align with current HTS guidelines.
• Verify valuation methods, ensuring proper documentation and exclusion of non-dutiable charges.
• Maintain thorough origin documentation to validate eligibility for preferential tariff treatments. When uncertain, seek binding CBP rulings to confirm tariff classifications or FTA eligibility.

Practical Implications for Businesses

With the tariff landscape rapidly evolving, the cost of delay is significant. Even indirect exposure through suppliers or logistics providers demands immediate attention. Companies should strategically reassess tariff classifications, sourcing geography, and eligibility for FTA benefits such as USMCA or KORUS. Minor adjustments in product design or sourcing location can lawfully produce substantial duty savings.

Businesses must conduct proactive risk assessments to pinpoint supply chain vulnerabilities by supplier, product, or geographic origin. Collaboration with suppliers and logistics providers is critical to maintaining alignment and preventing unexpected cost escalations. Expert customs advisory support is recommended to navigate tariff classification, valuation, and strategic sourcing complexities effectively.

Strategic Business Analysis

In light of recent tariff policy changes by the Trump administration, businesses engaged in international trade must adopt proactive strategies to ensure compliance, minimize risks, and leverage opportunities arising from the evolving customs landscape. The recommendations below provide practical, high-level guidance from a legal compliance and risk mitigation perspective, tailored specifically to the complexities of the current tariff environment.

Proactive Compliance and Risk Management Strategies

Given increased CBP enforcement activities, businesses should prioritize compliance and risk management through the following best practices:

• Enhanced Customs Compliance Programs:
  Companies should actively update their compliance programs , including clearly documented internal policies addressing tariff classifications, valuations, and preferential treatment claims. Importers are encouraged by CBP to conduct regular internal audits and provide ongoing training for key personnel involved in customs transactions.
• Strategic Use of Customs Rulings:
  Businesses should utilize CBP's binding ruling system to achieve certainty regarding the classification, valuation, and origin of imported goods. Obtaining binding rulings from CBP provides clarity and reduces exposure to potential tariff liabilities and penalties.
• Transparent Record-Keeping Practices:
  In the current regulatory environment, CBP emphasizes meticulous record-keeping practices. Importers should maintain comprehensive documentation supporting customs declarations, origin certifications, and tariff classifications to minimize penalties during audits and enforcement proceedings.

Effective tariff engineering strategies allow businesses to legitimately minimize import costs by utilizing existing tariff provisions and free-trade mechanisms:

• Leveraging Free Trade Agreements (FTAs):
  Companies should evaluate and restructure their sourcing and manufacturing operations strategically to qualify for preferential tariff treatment under updated FTAs (e.g., USMCA, KORUS, and U.S.-Singapore FTA). Legal guidance underscores the importance of adhering strictly to rules-of-origin requirements, as violations can result in penalties and loss of FTA benefits.
• Strategic Product Classification and Modification:
  Businesses can employ strategic tariff classification practices, known as tariff engineering, to lawfully alter product attributes, allowing imports to qualify for more favorable HTS classifications. According to legal practitioners, proactive review of tariff schedules combined with minor product modifications can significantly reduce tariff exposure without triggering enforcement risks.

To minimize exposure to tariff volatility and geopolitical risks, businesses should actively pursue diversification and risk mitigation through:

• Geographical Diversification:
  Reducing dependency on a single country or region by diversifying sourcing and manufacturing locations helps businesses mitigate risks associated with targeted tariff actions. Legal experts recommend companies regularly assess geopolitical trade dynamics, identifying viable alternatives in tariff-friendly jurisdictions such as Vietnam, Mexico (for certain goods), and ASEAN member states.
• Alternative Sourcing and Production Networks:
  Businesses should explore alternative suppliers and manufacturing partnerships, leveraging regional trade agreements or duty-free zones. Establishing manufacturing or assembly operations in regions covered by favorable trade agreements can significantly lower tariff burdens and provide stability during volatile tariff periods.

On April 2, 2025, President Donald Trump announced a sweeping escalation in U.S. trade policy, declaring a national economic emergency and implementing a baseline 10% tariff on all imports, regardless of origin. This universal tariff, set to take effect on April 5, marks a significant departure from prior country- or product-specific strategies and applies across all sectors. In parallel, the administration introduced “reciprocal tariffs” on dozens of countries with significant trade surpluses with the U.S., including an additional 34% tariff on Chinese goods, raising total duties on some items to 54%. This universal tariff in part requires a different approach to our commonly recommended course of action.

What This Means for Your Business

These developments present new and immediate cost pressures—especially for companies with global supply chains or high import volume. The universal tariff affects even low-risk categories, meaning previous exemptions or strategic sourcing zones may no longer offer relief. Industries such as electronics, automotive, apparel, and food services are expected to see cost volatility, inventory disruptions, and delivery delays. With retaliatory measures now being floated by several countries, U.S. exporters may also face increasing friction abroad.

Businesses should reassess how these new tariffs interact with existing trade programs, as many free trade agreements may no longer shield goods from additional duties. Importers relying on prior classifications or valuation methods should expect heightened scrutiny, especially as CBP ramps up enforcement. Exporters, meanwhile, should be alert to retaliation risk in key markets and consider whether current sales contracts, licensing structures, or distribution channels remain viable under escalating foreign countermeasures.

Recommended Strategies Now

• Update your tariff exposure map: Recalculate landed costs under the new 10% universal tariff and any applicable reciprocal duties. Use the Harmonized Tariff Schedule and cross-reference affected SKUs and suppliers.
• Review customs classifications and valuation methods: The broad scope of these tariffs makes documentation accuracy even more critical. If you're unsure about eligibility or coding, consider seeking a binding ruling from CBP.
• Renegotiate contract terms: Force majeure, change-in-law, or tariff passthrough provisions may now be triggered. Align with vendors and logistics providers on cost-sharing and contingency options.
• Explore sourcing alternatives: Countries not yet affected—or benefiting from bilateral agreements—may become more competitive. Regions such as Southeast Asia and Latin America are expected to see increased attention.
• Plan for retaliation risk: If you're exporting to targeted countries (especially in tech, agriculture, or heavy industry), monitor foreign tariff announcements closely and build flexibility into your sales contracts.

As with prior tariff waves, early preparation and a coordinated compliance strategy are key to minimizing business disruption. Stay informed, engage counsel, and adjust fast—because tariff regimes are changing faster than ever.

Authors: Spencer Viator and Daniel Koburger