Tariffs & Duties: Plain English

A tariff is a tax. Your government charges it when goods cross its border. That is it. No more complicated than that at the basic level.

When you import products from China, Vietnam, or anywhere else into the US, US Customs and Border Protection (CBP) charges you a percentage of what you paid for those goods. That percentage is the tariff rate. You write that check. Not your factory. Not your freight forwarder. You.

A duty is the same thing. The words are used interchangeably. Duty = tariff = import tax.

The key point in this diagram is simple. The tariff is charged once, when your goods enter the United States. After that, the goods are fully imported and you can do what you want with them.

Your customs broker handles the paperwork. They will advance the duty payment and invoice you, usually within a few days of your shipment clearing. That invoice is your duty cost.

The duty then lives in your landed cost. Landed cost = factory price + freight + duty + customs broker fees + any local delivery. That number is what you actually paid per unit to get goods sitting in your warehouse. Your margin should be calculated off landed cost, not factory price.

HTS stands for Harmonized Tariff Schedule. It is a 10-digit number that every physical product in the world gets assigned. That number tells CBP exactly what your product is and therefore what duty rate applies.

The same product can have very different duty rates depending on how it is classified. A paper puzzle might be 0%. A cardboard toy might be 4%. These feel like similar products but land in different HTS chapters. Getting the classification wrong means paying the wrong rate, which can mean overpaying or, worse, underpaying and getting a bill later.

Duty is calculated on the customs value of your goods. In the US, customs value is generally the transaction value, meaning what you actually paid your supplier in an arms-length transaction. For most brands buying FOB, this is your factory invoice price.

Freight and insurance costs are generally not included in the customs value calculation under the US system (unlike some other countries that use CIF value). This is one reason why the Incoterm on your invoice matters.

China's tariff situation is not normal. It requires its own explanation because it is layered, it changes frequently, and it has a direct impact on whether sourcing from China is viable for your product.

There are two separate tariff systems applying to Chinese goods at the same time.

The situation got more complicated in 2025 when additional executive orders were issued. Some categories saw rates reach 50% or more in combined total. Some product categories have exclusions or have been grandfathered at lower rates. Others have not.

The honest answer is that nobody should be making sourcing decisions about China without checking their specific HTS code at the current rate. The rules change faster than any guide can track. What was 25% may now be 50%. What was 50% may have received an exclusion. Check the actual current rate for your specific code before placing a factory order.

That depends on your product. For simple paper goods, puzzles, textiles, and ceramics, Vietnam and India now offer comparable quality and the cost math has shifted substantially in their favor. For precision-manufactured products, complex electronics-adjacent goods, or categories where China's manufacturing infrastructure is genuinely irreplaceable, the calculation is harder.

The transition takes 12 to 24 months minimum. Finding a new factory, qualifying it, running samples, placing trial orders, and building the relationship is not fast. Do not wait for a crisis before starting this process.

Incoterms (International Commercial Terms) are a set of standardized abbreviations used on international trade invoices. They define exactly where the seller's responsibility ends and the buyer's begins. They cover two things: who pays for each leg of transport, and who bears the risk if goods are damaged or lost in transit.

The term on your supplier invoice matters. It affects your customs value (and therefore your duty calculation), your freight cost responsibility, your insurance obligation, and who handles export customs at origin.

In the US, customs value is based on the transaction value, generally the FOB price. If your invoice says FOB $10,000, your duty is calculated on $10,000. If your invoice says CIF $11,500 (because your supplier added freight and insurance), customs may still use the FOB-equivalent value for duty, but this depends on how the entry is filed. Ask your broker how they are handling this.

The practical takeaway: get your supplier to quote and invoice on FOB terms. It keeps your cost breakdown clean and your duty calculation simple.

De minimis is a rule that says shipments valued below a certain threshold can enter the US without paying duty and with minimal customs paperwork. In the US, that threshold has been $800 per person per day. This is called a Section 321 entry.

This rule was designed for travelers bringing small amounts of goods back home. Over time, it became the mechanism that allowed platforms like Shein and Temu to ship individual packages directly from China to US consumers without paying tariffs, giving them a substantial cost advantage over brands that import in bulk and pay full duty.