Trade tension between China and the USA has escalated since Trump raised tariffs on US$200 billion of Chinese imports and threatened to impose on another US$300 billion. Millions of people and companies with import and export business have been impacted due to the increased import duties.
How big is the real impact on your business line? Is your product hit with the additional 25% tariff? What’re the customs duty rate? How much will you pay? Can you still afford to import from China to the USA? You may have lots of similar or other questions struggling in your mind.
After reading this article, you’ll be able to measure the impact in figures, know what import taxes you need to pay, and how to calculate it on your own so that you can decide whether to continue sourcing from China or buying locally or elsewhere.
According to our experience, for small and medium-sized businesses, if you are not purchasing containers of goods at one time, the impact of increased tariffs may not be as big as you might think. Now let’s dive into below article to have a reality checking.
1. What import tax you need to pay for imports from China to the USA?
Basically, for any goods coming into the United States valued at or more than $800 are subject to import duties or customs duties. Import duties are the major part of import tax an importer has to pay to US customs. The rates of customs duties are either specific or on ad valorem basis of the value of the goods, dependent on the H.S code of the product and country of origin.
There are other additional but relatively small import taxes and fees such as Federal Excise Tax for particular items such as alcohol, tobacco, etc, Merchandising Processing Fee (MPF), and Harbor Maintenance Fee (HMF).
All imports both for informal entry and formal entry are subject to MPF fee, based on an ad valorem fee of 0.3464% of the goods’ value. But it has a fixed range from $26.22 to $508.70, indicating both the maximum and minimum fee you need to pay. If goods are shipped by sea, you’ll also need to pay HMF fee, an ad valorem fee of 0.125% of the value of the merchandise. HMF is not collected on shipment transported by air.
2. How much customs duty will you pay? Are your products included in the 25% tariff list?
As of now, the product lists of imposing an additional 25% tariff on imported Chinese goods under the US-China trade war have gone through 3 different stages. The first two lists of Chinese imports with a combined annual trade value of $50 billion mainly target products central to Made in China 2025 initiative.
Products such as technological parts, electronics, and machinery used to make or process textiles, food, etc will be hit with a 25 percent of duties as a result. The importer can search for HTS 9903.88.01 or 9903.88.02 for special tariff number for the product of China.
The 3rd list of $200 billion of Chinese goods, cover categories such as consumer products, chemical and construction materials, textiles, tools, food and agricultural products, commercial electronic equipment and vehicle/automotive parts, etc. You can find the finalized List 3 here. The importer can search for HTS 9903.88.03 or 9903.88.04 for special tariff number for the product of China.
The 4th list of another $300 billion of China imports that are proposed to be subject to additional duties will cover essentially all the remaining U.S. imports from China, including the following categories:
- Agricultural and food products, including meat, dairy, produce, and alcohol;
- Industrial chemicals, minerals, and other raw materials;
- Live animals including livestock, insects, and birds;
- Steel and aluminum products currently excluded from List 1 duties during the comment period but subject to additional duties under Section 232;
- Other base metals;
- Textiles and apparel, including footwear;
- Household goods;
- Jewelry, gemstones, and precious metals;
- Machinery, computers, televisions, and other electronics;
- Vehicles including motorcycles, watercraft, and aircraft;
- Numerous categories of scrap and waste materials;
- Firearms, ammunition, and other weapons;
- Recreational equipment;
- Personal hygiene and grooming items; and
- Books and artwork.
Source: Office of Federal Register. You can find the proposed products here.
To know if your product is hit with another 25% tariff rate, please refer to the following guide to find the most update rate.
3. How to calculate the import tax? A step by step guide.
Step1: Know what’s H.S code and how to check it
Before checking the rate, there is some basic knowledge you should know about the H.S. code and HTS (Harmonized Tariff Schedule) which essentially determines the applicable tariff rate of all merchandise imported into the states. HTS specifies duty rate for virtually every item that exists, based on the item’s H.S code and country of origin.
HS stands for International Harmonized System and is administered by the World Customs Organization. The first 6 digits HS code for one product category are the same in all countries. Each country can modify by adding another two or four digits without changing the first 6 digits. The U.S. import, HTS classification system, and export, Schedule B classification system, expand their scope to 10 digits.
For example, H.S.Code 0102.21.0010 is meant for Male Purebred Breeding Animals under heading 0102 (Live bovine animals), under chapter 01 (Live Animals).
If you only have your product name and want to know its H.S code, here are three simple ways for you to get the code.
1. H.S code lookup tool. You can have a quick online H.S code search via H.S code lookup tool by typing in product keyword (eg. shoes) and select the category related to your product. In this way, you’ll get first 6 digits H.S code.
2. Search on USITC. Type in the product keyword (eg. shoes) directly on the search page of USITC and you’ll find there are different codes to choose from. You need to scroll down to the product, whose description applies to yours, then you’ll get both the H.S code and relevant duty rate at the same time.
3. Check with a customs broker or freight forwarder. You may find it difficult for you to identify the exact H.S code for your product during the above search, it is always advisable for you to check with your customs broker or international freight forwarder to get the specific H.S code, as they are the ones who help you do the customs clearance successfully.
Step2: Know how to check import duty rate online
The HTS classification can be very complicated. If you self-classify an item and the classification is incorrect, the mistake can be costly.
Please also note that you can get an approximate idea of the duty rate of a particular product through your own search, the U.S Customs and Border Protection makes the final determination of what the correct rate of duty is.
Here are the most convenient ways to help you check the rate online.
1. Find the latest duty rate information on U.S International Trade Commission website (USITC) for HTS 2019 Revision by chapter, then scroll down to the section that your product falls under and click on the chapter that relates to your product.
2. Type in the H.S code you get (eg. 6403.19.1000) on the search page of USITC to check the rate.
3. Contact a customs broker or CBP specialist for very specific duty information on a particular product by calling your local CBP port.
Step3: Know how to calculate the import tax
For example, if you are importing Blankets into the US by the ocean, with a total commercial value of $3,000, then the major customs duty and tax will consist of the following parts:
- Customs Duty: customs value * customs duty rate
- MPF fee: commercial value * 0.3464% (shall not be less than $26.22)
- HMF fee: commercial value * 0.125%
The customs value is based on the declared value of goods which can be found on the commercial invoice, which is USD 3,000. For the customs duty rate, let’s say you get the H.S code from the supplier: 6301.30.0020, then search it on USITC and you’ll find the rate of 8.4% as shown below.
Then you multiply the customs value ($3,000) by the duty rate of 8.4%, you’ll get a duty of $252. Also based on the above formula, you’ll get MPF of $26.22, and HMF of $3.75. By adding them up together, you’ll get the total import tax you need to pay, which is $281.97.
With the H.S code at hand, another easy way to calculate the import tax is to go to SimplyDuty for an automatic calculation provided by the website. The only thing is that it does not include MPF and HMF fees.
Again remember that it is the CBP who finally determines the correct duty rate. The actual rate of the item you import may not be what you think it should be as a result of your research. But the above search method and calculation can give you a rough idea of how much the import tax should be to help you calculate the import costs per item even before you import.
Step4: Know if your product is hit with another 25% duty rate
After the first three steps, you already know how to check the rate on USITC. Now we’ll show you how to find whether your product is charged with another 25% rate under the trade war.
For example, H.S code 8408.10.00 is meant for Marine propulsion engines. Before the trade war, the general duty rate is shown as 2.5%. However, as you notice below, there is a “/” followed, asking you to refer to heading 9903.88.01, products of China, explaining the current rate being the duty rate provided in the applicable subheading (2.5%) plus 25%, which comes to 27.5%, the new tariff rate.
Before the Trade War
Under Trade War
In the article description, you may also notice that note 20(a) and note 20(b) are mentioned, to help you get a better understanding of the content, you can find a detailed explanation under Chapter Notes as shown below:
What if you find there is no “/” followed on the HTS search results, but these products are included in the tariff list? Our suggestion here is to search for your product under HTS 2019 Revision by chapter and double check with your customs broker or CBP to get the most specific duty information.
4. How to pay the import tax? When is a customs bond required?
The import tax will be collected by the U.S Customs and Border Protection (CBP). Given the complexity of import clearance process, most of the time, you as the importer can buy the service of a local customs broker to help you prepare all the documents needed to declare the goods upon their arrival.
One very important document we would like to mention here during the import entry process is the entry form (CBP Form7501), which goes with the calculated import tax from China to the USA. You can find an example form below:
Example (CBP Form7501)
CBP also requires that the importer must post a customs bond if you are importing merchandise into the United States, for commercial purposes that are valued over $2,500, or a commodity subject to other federal agencies requirements (i.e. firearms or food). A customs bond, sometimes also called US surety bond, assures CBP that the importer will fulfill any financial responsibilities for customs duties, penalties, and other obligations.
The easiest way to obtain a customs bond is through a customs broker or an international freight forwarder. However, if you import goods subject to FDA’s requirements and regulations, you must need to register your importer information on the FDA website, in such situation, you must purchase a customs bond to prove that you have the qualification needed to import those goods. If you use a freight forwarder, the U.S customs will not accept the forwarder’s identify for the imports.
If you want to clear the goods under the name of your own company, you must purchase a customs bond through a surety agency licensed by the U.S Treasury Department. If you use the customs broker to clear your goods through CBP, then the broker’s bond can be used. For a list of licensed customs brokers, check at the port of entry.
Under DDP terms, your supplier will be responsible for import clearance and pay for all the import duties and tax.
5. What are the common ways to avoid or reduce the import tax?
No matter you are purchasing big or small quantities, for some people, import tax can still be a big burden, they’ll think of as many ways as possible to avoid or reduce the tax during the business transactions. Below are some most common ways we’ve seen.
a.Common situations not to pay for duties
There are several situations when there is no need to pay for the import tax. They are:
(1)Personal exemption. According to CBP, there is a duty-free exemption, or personal exemption, which is the total value of goods you can bring back to the United States without having to pay duty. In most cases, the personal exemption is $800, but there are limits on the number of alcoholic beverages, cigarettes, cigars, and other tobacco products you may include in your duty-free personal exemption.
(2)Samples. Samples are another exception, as your samples are for your own evaluation and will not be resold for commercial purposes, you can ask your supplier to put the samples at a nominal value of $1 and mention on the Sample invoice “Sample of No Commercial Value”.
(3)Dropshipping. In the drop shipping business, as the goods are delivered directly from the third party (manufacturer or wholesaler) to the customer via ePacket or China Postal Parcel, no import duty is charged; however, the seller will have to pay income tax and sales tax.
b.Common ways to reduce import duty (Attention!)
Although some people tend to use below methods to reduce import tax, considering the risks involved, we’ll not suggest you do like them.
(1)Lowering product value on the commercial invoice. Given a certain rate, based on the formula of calculating customs duty, one possible way to reduce the import duty is to lower the declared value. As agreed with the importer, some suppliers will help put a lower product value to help the buyer reduce the customs duty.
However, if the U.S customs find that the declared value is less than the actual value and is lowered on purpose, the customs will impose a punitive tariff, even worse, the goods might also be destroyed or returned to the port of loading.
(2)Separating the delivery into several batches by international mail. As imports of goods valued at more than $2,500 will require a formal entry. For some importers, they’ll ask the supplier to send through the international postal system and separate the delivery into several batches, with each less than $800.
However, be cautious and think twice before you actually do this. The personal exemption may only be applied to goods accompanying travelers. If the U.S customs find your behavior is deliberately taken to reduce tax, the exemption will not be permitted. On the other hand, the total shipping cost by express can also be high.
(3)Through intermediate trade or entrepot trade. Under pressure of the additional 25% tariff policy targeting imports from China, some people are considering to transit goods at a third country, then export to the USA using the third country as the country of origin, instead of China, to avoid the increasing import duties. However, there are still many risks involved in the process and will also occur high transition costs.