What’s the Difference Between Duty and Tariff?

Global trade powers many modern businesses, but expanding into international markets means dealing with plenty of trade costs. That’s why knowing about these costs helps you stay compliant, avoid unexpected fees, and protect your bottom line.

Two terms that often come up in conversation are duty and tariff, especially following recently introduced US trade policies. While they’re often used interchangeably, they serve distinct roles in international commerce.

This article explores the differences between duty and tariff, helping you avoid costly mistakes and manage global business payments more effectively. We’ll also introduce how Wise Business can help you manage and grow your international trade operations across borders.

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What Is a Tariff?

A tariff is a government-imposed tax on goods imported into a country. In rarer cases, tariffs can also apply to exports. The primary function of a tariff is to regulate trade, protect domestic industries, or generate revenue¹.

For example, if a U.S. business imports electronics from abroad, the government may impose a tariff to make those goods more expensive, giving local manufacturers a competitive edge. Tariffs can apply to specific products, industries, or even entire countries.

Types of Tariff

There are several types of tariffs, each with different applications:

• Ad valorem tariff: A percentage of the product’s value (e.g., 10% of the invoice price).
• Specific tariff: A fixed amount per unit (e.g., $5 per kg of textiles).
• Compound tariff: A combination of both specific and ad valorem tariffs².

The type of tariff applied often depends on the nature of the product, its classification under the Harmonized System (HS) code, and the trade policies of the importing country³. For example, specific tariffs are commonly applied to goods that are difficult to value or have significant price fluctuations, such as agricultural products. Ad valorem tariffs are typically used for goods with more stable and easily accessible values.

The tariff you choose can significantly influence your pricing strategy and overall profitability when importing goods.

Who Pays Tariffs?

A frequently asked question is, ”Who pays tariffs?” The answer is generally the importer. The business bringing goods into the country is responsible for paying the tariff at the time of customs clearance. These costs may then be passed on to the consumer in the form of higher prices³.

So if you’re a U.S. company importing raw materials from overseas, you’ll typically be on the hook for these changes.

What Are Duties?

While tariffs are a kind of tax on imports or exports, duties refer more broadly to the fees applied by customs authorities for moving goods across borders. Think of tariffs as one specific type of duty. So, while all tariffs are duties, not all duties are tariffs.

That’s the real difference between tariff and duty. Duties can also stem from trade agreements, economic conditions, or environmental regulations¹.

Duties can vary significantly depending on trade agreements between countries.³ For example, businesses operating under a Free Trade Agreement (FTA) and USMCA (United States-Mexico-Canada Agreement) may benefit from reduced or even zero duties on eligible goods¹.

However, to claim these benefits, the importer must meet strict rules of origin and maintain proper documentation⁴. Failing to do so could result in retroactive duties or penalties. That’s why staying updated on current regulations and ensuring accurate product classification is essential. Businesses shipping internationally should also work closely with customs brokers or logistics providers to streamline compliance and avoid delays at the border.

Import Duties

Import duties are fees placed on goods entering a country. They’re calculated based on a product’s value, classification (using the Harmonized System code), and country of origin¹.

Wondering how duties are calculated? Let’s say you’re importing furniture from Italy into the U.S.

• Declared value of goods: $10,000
• Duty rate: 5%
• Total import duty: $500

Other fees, like merchandise processing fees (MPF) or harbor maintenance fees (HMF), might also apply.

Export Duties

Less common than import charges, export duties are taxes applied to goods leaving a country. Governments may use them to control the outflow of scarce resources or regulate prices.³ For example, a country might impose export duties on agricultural goods to ensure domestic food supply.

If your business exports raw materials or commodities, understanding applicable export duties is especially important to staying compliant and profitable².

Import Duty vs Tariff

Let’s recap the import duty vs tariff comparison to make things clearer: ^2,3

This should settle the confusion for anyone asking: what is a tariff and is tariff the same as tax. Remember: a tariff is a form of tax, but not all taxes or duties fall under tariffs.

Why Understanding the Difference Between Duty and Tariff Matters For Your Business

Whether you’re sourcing products from overseas or expanding your sales internationally, duties and tariffs directly impact your pricing, profit margins, and overall business strategy³.

Misunderstanding the difference between duty and tariff could lead to unexpected expenses or compliance issues that affect your bottom line⁵. For example, misclassifying your goods or underestimating customs charges could delay shipments or even result in fines.

By gaining clarity on these trade terms, you can better plan your import/export activities, negotiate with suppliers, and manage landed costs more effectively². This level of insight also improves your competitiveness in global markets, especially when paired with smart financial tools like Wise Business.

Final Thoughts

Understanding the difference between duty and tariff is key for companies navigating the global market. Duties are broader and can include various charges, while tariffs specifically target international trade.

Whether you’re importing consumer goods or exporting raw materials, familiarizing yourself with these terms can help you avoid compliance issues, price your products correctly, and protect your profit margins.

And when it’s time to manage international payments, why not consider using Wise Business to streamline your operations and save on fees?

Save Time and Money On Overseas Payments With Wise Business

Wise Business can help you save big time on international payments.

Wise is not a bank, but a Money Services Business (MSB) provider and a smart alternative to banks. The Wise Business account is designed with international business in mind, and makes it easy to send, hold, and manage business funds in currencies.

Signing up to Wise Business allows access to BatchTransfer which you can use to pay up to 1000 invoices in one go. This is perfect for small businesses that are managing a global team, saving a ton of time and hassle when making payments.

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Some key features of Wise Business include:

• Mid-market rate: Get the mid-market exchange rate with no hidden fees on international transfers

• Global Account: Send money to countries and hold balances in multiple currencies, all in one place. You can also get major currency account details for a one-off fee to receive overseas payments like a local

• Access to BatchTransfer: Pay up to 1000 invoices in one click. Save time, money, and stress when you make 1000 payments in one click with BatchTransfer payments. Access to BatchTransfer is free with a Wise Business account

• Auto-conversions: Don't like the current currency exchange rate? Set your desired rate, and Wise sends the transfer the moment the rate is met

• Free invoicing tool: Generate and send professional invoices

• No minimum balance requirements or monthly fees: US-based businesses can open an account for free. Learn more about fees here

Sources:

1. The difference between duties, taxes, and tariffs - How they factor into your international shipping strategy | DCL
2. Duty vs. tariff - What's the difference? | Thomas
3. Duty vs tariff vs tax | Drip Capital
4. Import tariffs overview and resources | International Trade Administration
5. What is the difference between taxes, duties, and tariffs? | Trade Risk Guaranty