Tariff Laws and the Tariff Exemption Process

Created by FindLaw's team of legal writers and editors.

If you run a business, tariffs can dramatically impact your bottom line. Let's say you're a furniture maker renowned for your black maple coffee tables, and the government slaps a 25-percent tariff on Canadian black maple, the finest variety. Will you have to raise prices? Will you change the type of wood you use?

Read on to learn more about tariff laws, how they work, and how you might be able to request an exemption for your business.

The Purpose of Tariffs

Essentially, a tariff is a tax imposed on a category of imported goods. Customs officials collect the payment when the items pass through a port of entry. Other terms for tariff are "customs duty" and "import duty."

Although tariffs generate revenue for a government's treasury, that's not usually the primary reason why they're used. Rather, the typical purpose of a tariff is to shield domestic industries from foreign competition by raising the price of imported products.

In developed economies like the U.S., tariffs may help manufacturing industries compete against overseas firms that pay their workers a fraction as much and don't have to comply with stringent environmental and other laws. In developing economies such as Nigeria and Brazil, tariffs are often used to protect local or infant industries so they can develop to the point where they can compete internationally.

The Downsides of Tariffs

The main drawback of tariff laws is that other nations may decide to retaliate by increasing their own customs duties. This, in turn, makes it harder to export products to those markets. When tariff disputes arise between nations, the World Trade Organization provides an international forum to resolve them.

Who loses most from high tariffs? Arguably it's consumers, who may see price spikes because importers pass on the cost of customs duties to other parties down the line. Furthermore, tariffs can put upward pressure on prices by reducing competition that helps keep them down.

How Tariffs Are Imposed

Tariff levels are often set by international agreements, and some nations have negotiated so-called free trade agreements that reduce tariff rates on commerce between them.

In the U.S., the Constitution assigns the role of laying tariffs solely to the legislative branch. However, Congress has delegated certain powers to the President to deal with situations where quick or decisive action is necessary, such as war or threats to national security. These delegating statutes include:

  • Trade Expansion Act of 1962. Congress authorizes the President to adjust tariffs if the Secretary of Commerce determines that there is a threat to national security;
  • Trade Act of 1974. Congress authorizes the President to modify certain tariffs when, among other things, a foreign country engages in an unjustifiable act that burdens or restricts U.S. commerce; and
  • International Emergency Economic Powers Act of 1977. Congress grants certain importation/exportation powers if the President declares a national emergency to deal with an "unusual and extraordinary" threat.

Requesting a Tariff Exemption

So how can your business respond to steep new tariffs? You’ll have difficult choices to make about whether to raise prices, alter supply chains, or even relocate operations to a different country. Another option that may be available is to seek a tariff exemption (technically referred to as an "exclusion"). If granted, neither you nor any other importer will have to pay the customs duty on that specific category of goods. Tariff exclusion requests are processed through the Office of the U.S. Trade Representative (USTR) or the U.S. Department of Commerce, depending on the context.

To show how the exemption process works, consider the 25-percent tariff that President Trump imposed in 2018 covering numerous items imported from China. The USTR formally published detailed instructions about how to submit a request to have a product excluded from the list. Requesters were advised to focus on questions such as:

  • Whether the particular product is available only from China; and
  • Whether the tariff would cause severe economic harm to the requestor or other U.S. interests.

Many of the exemption requests were granted, though fewer than half overall.

Have Questions About Tariffs and Tariff Exemptions? Ask a Lawyer

Tariff laws can significantly increase a business's costs, especially in some industries. If you have questions about this subject or would like to know whether there's a chance of successfully obtaining an exemption for an item, you may wish to contact a business and commercial attorney near you, who will help you navigate the intricate world of tariffs.

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