Tariff & Trade Glossary
Plain-English definitions of 39 tariff and trade policy terms. No jargon, no spin — just clarity.
A
Ad Valorem
A tariff calculated as a percentage of the customs value of the imported goods. Most US tariffs are ad valorem — for example, '25% of the customs value.' Some tariffs are 'specific' (a fixed dollar amount per unit) or 'compound' (combining both).
Antidumping Duty (AD)
A tariff imposed on imports that are sold at unfairly low prices — below normal value or below cost. The US Department of Commerce investigates dumping claims and the International Trade Commission determines whether a US industry is materially injured. AD duties can be substantial, sometimes exceeding 100%.
B
Balance of Payments
A comprehensive accounting of all economic transactions between a country and the rest of the world. It includes the current account (trade in goods and services), the capital account (investment flows), and the financial account. By definition, the balance of payments always balances — a trade deficit is offset by capital inflows.
Bonded Warehouse
A secure facility where imported goods can be stored without paying customs duties. Duties are only collected when the goods leave the warehouse for domestic sale. Goods can be stored for up to 5 years, re-exported without ever paying duty, or undergo limited processing. Bonded warehouses help importers manage cash flow during tariff uncertainty.
C
Compound Tariff
A tariff that combines both an ad valorem component (percentage of value) and a specific component (fixed amount per unit). For example, '10% + $0.50 per kilogram.' Compound tariffs are less common but appear in the HTS for certain products like footwear and canned goods.
Countervailing Duty (CVD)
A tariff imposed to offset foreign government subsidies. When a foreign government subsidizes an export industry (through grants, tax breaks, cheap loans, etc.), the US can impose countervailing duties to neutralize the subsidy's effect. CVDs require an investigation and finding of material injury to a US industry.
Customs Broker
A licensed professional who handles the complex process of clearing imported goods through US Customs. Customs brokers classify products under the correct HTS codes, calculate duties, prepare documentation, and ensure regulatory compliance. They must pass a demanding federal exam and be licensed by CBP.
Customs Value
The declared transaction value of imported goods, used as the basis for calculating ad valorem tariffs. Customs value generally equals the price paid by the importer to the foreign seller, including certain costs like packing and selling commissions.
D
De Minimis
A threshold below which imported goods enter the US without tariffs or formal customs processing. Set at $800 per shipment since 2016, the de minimis exemption was eliminated for Chinese goods in May 2025 and for all countries later that year. Before elimination, approximately 4 million packages per day entered the US under de minimis.
Dumping
The practice of exporting goods at a price below their normal value (typically below cost or below the home-market price). Dumping is considered an unfair trade practice and is addressed through antidumping duties — additional tariffs imposed on specific products from specific countries after an investigation.
Duty
Another word for tariff. 'Customs duty' and 'tariff' are used interchangeably. Duty is the amount owed to the government when goods cross the border.
E
Effective Tariff Rate
The actual average tariff rate paid across all imports, calculated as total tariff revenue divided by total import value. The US effective tariff rate rose from approximately 2.5% in 2024 to approximately 22.5% in 2025 — the highest since the 1930s.
F
Free Trade Agreement (FTA)
A treaty between two or more countries that reduces or eliminates tariffs and trade barriers between them. The US has FTAs with 20 countries including Australia, South Korea, Colombia, and others. FTAs typically phase in tariff reductions over 5-15 years.
Free Trade Zone (FTZ)
A designated area within the US that is legally considered outside the customs territory for duty purposes. Goods can enter an FTZ without paying tariffs, be stored, assembled, manufactured, or re-exported. If goods enter the US market from an FTZ, duties are paid at that point — sometimes at a lower rate if the goods were transformed. Over 190 FTZs operate across the US.
G
GATT (General Agreement on Tariffs and Trade)
The international trade agreement that governed global trade from 1947 to 1994, when it was superseded by the WTO. GATT established the framework of tariff negotiations, most-favored-nation treatment, and binding commitments that still form the backbone of the world trading system. Eight rounds of GATT negotiations progressively lowered global tariffs from ~40% to under 5%.
H
Harmonized Tariff Schedule (HTS)
The official list of all US tariff rates, organized by product classification. Every imported product is assigned a 10-digit HTS code that determines its tariff rate. The HTS is maintained by the US International Trade Commission (USITC) and contains over 10,000 product categories.
I
International Emergency Economic Powers Act (IEEPA)
A 1977 law that grants the President broad authority to regulate international commerce during a declared national emergency. Originally designed for sanctions and crisis response, IEEPA was used in 2025 to impose sweeping tariffs on imports from virtually all countries — a use unprecedented in the law's history and now being challenged in court.
M
Most Favored Nation (MFN)
The baseline tariff rate that WTO member countries apply to each other. Despite the name, MFN is the 'normal' rate — not a special discount. The US applies MFN rates to most countries unless a free trade agreement provides lower rates or punitive tariffs apply higher rates. Also called 'Normal Trade Relations' (NTR) in US law.
P
Port of Entry
The location where imported goods enter the US and are processed by Customs and Border Protection (CBP). Major US ports of entry include the Port of Los Angeles/Long Beach, Port of New York/New Jersey, and Port of Savannah. Tariff duties are assessed and collected at the port of entry.
R
Reciprocal Tariff
A tariff imposed to match or respond to tariffs imposed by another country. The 2025 'reciprocal tariffs' claimed to match the tariff rates other countries charge on US goods, though the methodology for calculating these rates was widely criticized as inaccurate.
Retaliatory Tariff
A tariff imposed by a trading partner in response to US tariffs. Retaliatory tariffs are typically designed to target politically sensitive US exports (bourbon, soybeans, Harley-Davidsons) to maximize political pressure.
Rules of Origin
Criteria used to determine where a product was 'made' for tariff purposes. Under USMCA, a vehicle must contain 75% North American content to qualify for duty-free treatment. Rules of origin are critical in determining which tariff rate applies to a product.
S
Safeguard Tariff
A temporary tariff imposed to protect a domestic industry from a sudden surge in imports that causes or threatens serious injury. Unlike antidumping and countervailing duties, safeguard tariffs don't require proof of unfair trade practices — just an import surge. The US imposed safeguard tariffs on washing machines and solar panels in 2018 under Section 201.
Section 122
A provision of the Trade Act of 1974 that allows the President to impose temporary (up to 150 days) tariffs of up to 15% to address large and serious balance-of-payments deficits. Rarely used, but occasionally cited in tariff policy discussions.
Section 201
A provision of the Trade Act of 1974 that authorizes safeguard tariffs when the ITC finds that increased imports are a substantial cause of serious injury to a domestic industry. Section 201 was used to impose tariffs on imported washing machines and solar panels in 2018. Unlike Section 232, it requires an ITC investigation and finding.
Section 232
A provision of the Trade Expansion Act of 1962 that allows the President to impose tariffs on imports that threaten national security. Section 232 was used to impose 25% tariffs on steel and 10% tariffs on aluminum in 2018, and has been used for subsequent tariff actions. Critics argue it has been stretched far beyond its original intent.
Section 301
A provision of the Trade Act of 1974 that allows the President to impose tariffs in response to unfair foreign trade practices. Section 301 was the legal basis for tariffs on $370+ billion in Chinese goods starting in 2018, in response to forced technology transfer and IP theft.
Specific Tariff
A tariff expressed as a fixed monetary amount per physical unit of the imported good — for example, '$0.68 per kilogram' or '$1.50 per liter.' Unlike ad valorem tariffs (percentage-based), specific tariffs don't change with the price of the good. This means they hit cheaper goods proportionally harder.
T
Tariff
A tax imposed by a government on imported goods. In the US, tariffs are paid by the American importer of record — not by the foreign country or exporter. The cost is typically passed to consumers through higher prices.
Tariff Engineering
The practice of designing or modifying products to qualify for a lower tariff classification under the HTS. For example, importing shoes with textile uppers instead of leather to pay a lower duty rate, or importing furniture unassembled to classify under a different heading. Tariff engineering is legal but creates economic distortions.
Tariff Inversion
A situation where the tariff on a finished product is lower than the tariff on its raw materials or components. Tariff inversions discourage domestic manufacturing because it's cheaper to import the finished good than to import inputs and make it domestically. Several 2025 tariff actions created inversions in electronics and auto manufacturing.
Tariff Rate Quota (TRQ)
A two-tier tariff system where a lower tariff applies to imports up to a specified quantity (the quota), and a higher tariff applies to imports above that quantity. TRQs are common for agricultural products like sugar, dairy, and beef.
Trade Creation
An economic concept where a trade agreement leads to increased overall trade because lower tariffs allow more efficient foreign producers to replace less efficient domestic production. Trade creation is the primary benefit of free trade agreements and is generally welfare-enhancing for consumers.
Trade Deficit
The amount by which a country's imports exceed its exports. The US goods trade deficit was approximately $1.2 trillion in 2024. Despite common claims, the trade deficit is not a 'loss' — it reflects that Americans buy more goods than they sell, offset by capital inflows (foreign investment in the US). The trade deficit often grows during economic booms.
Trade Diversion
An economic concept where a tariff or trade agreement causes imports to shift from a more efficient supplier to a less efficient one. For example, tariffs on Chinese goods may cause imports to shift to Vietnam — not because Vietnam is more efficient, but because it faces lower tariffs. Trade diversion reduces overall economic efficiency.
Trade Surplus
The amount by which a country's exports exceed its imports. The US runs a trade surplus in services (finance, tech, entertainment) but a large deficit in goods. Whether a trade surplus is 'good' depends on context — it can reflect strong competitiveness or weak domestic demand.
Trade-Weighted Average Tariff
An average tariff rate calculated by weighting each product's tariff rate by the value of its imports. This gives a more accurate picture than a simple average because it accounts for the fact that some products are imported in much larger volumes than others. The trade-weighted average is typically lower than the simple average.
U
USMCA
The United States-Mexico-Canada Agreement, which replaced NAFTA in 2020. USMCA provides duty-free or reduced-duty treatment for qualifying goods traded between the US, Mexico, and Canada. The 2025 IEEPA tariffs partially overrode USMCA benefits for many product categories.
W
World Trade Organization (WTO)
The international body that sets rules for global trade. The WTO has 164 member countries and provides a forum for trade negotiations and dispute resolution. Key principles include most-favored-nation treatment (equal tariff rates for all members) and binding tariff commitments. Multiple countries have filed WTO disputes against the 2025 US tariffs.
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