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Explainers/Economy

How tariffs work, explained: who sets them, who pays them and how they reach prices

A tariff is a tax on imported goods, collected at the border. Here is the legal authority behind them, who writes the check, and how economists measure the effect.

9 min read|Updated August 5, 2026

A tariff is a tax an importer pays to the federal government when goods cross the border. U.S. Customs and Border Protection collects it, and the money goes to the Treasury's general fund. The Constitution gives Congress the power to lay duties, but Congress has delegated much of that authority to the president through a series of trade statutes. Whether the cost lands on foreign exporters, U.S. importers or consumers depends on how each responds — a question economists study by measuring price pass-through after specific tariffs take effect.

Who pays at the border
The U.S. importer of record — typically a domestic company — pays the duty to Customs and Border Protection when the goods enter the country.
Constitutional source
Article I, Section 8 gives Congress the power to lay and collect taxes, duties, imposts and excises and to regulate commerce with foreign nations.
Main delegated authorities
Section 232 (national security), Section 301 (unfair foreign practices), Section 201 (import surges), and the International Emergency Economic Powers Act of 1977.
Historic share of revenue
Tariffs supplied most federal revenue before the income tax was authorized by the 16th Amendment in 1913. In recent decades customs duties have been a small share of total federal receipts.
Standard rate schedule
The Harmonized Tariff Schedule of the United States lists a rate for every product category; average applied rates on most goods were low single digits before recent tariff actions.

What are the main statutes a president can use?

Section 232 of the Trade Expansion Act of 1962 lets the president adjust imports after a Commerce Department investigation finds they threaten national security. Section 301 of the Trade Act of 1974 lets the U.S. Trade Representative respond to unfair foreign practices. Section 201 of the same act allows temporary safeguard tariffs when a surge of imports injures a domestic industry. The International Emergency Economic Powers Act of 1977 lets the president regulate international commerce during a declared national emergency; its use for across-the-board tariffs is legally contested because the statute does not mention tariffs. Section 338 of the Tariff Act of 1930 and Section 122 of the 1974 act provide narrower balance-of-payments and discrimination authorities.

Does the exporting country pay the tariff?

No, not directly. The duty is a legal obligation of the U.S. importer. A foreign exporter can bear part of the cost indirectly if it cuts its prices to keep the sale, which economists call exporter pass-through. Studies of the 2018-2019 U.S. tariffs by economists at the Federal Reserve, Princeton, Columbia and elsewhere generally found close to complete pass-through into U.S. import prices, meaning U.S. buyers absorbed most of the cost — though results vary by product and by how concentrated the supplier market is.

How does a tariff reach the price on a shelf?

The importer pays the duty and then decides how much to absorb in its margin and how much to add to its wholesale price. Retailers make the same decision. Goods with thin margins and many substitutes tend to show faster price increases; goods where the importer has pricing power may show slower ones. Tariffs on intermediate inputs such as steel, aluminum or components also raise costs for U.S. manufacturers that use them, which is why domestic producers are often on both sides of a tariff debate.

What are the arguments for tariffs?

Supporters cite protecting industries considered strategically necessary such as steel, semiconductors and pharmaceuticals; offsetting foreign subsidies or dumping; preserving jobs in exposed sectors; creating leverage in trade negotiations; and raising revenue. Some economists accept infant-industry and national-security rationales while questioning broad application.

What are the arguments against?

Critics point to higher input costs for domestic manufacturers, higher consumer prices, retaliation against U.S. exporters — especially agriculture — and reduced efficiency as production shifts to higher-cost suppliers. They also note that tariffs are regressive relative to income because lower-income households spend a larger share of income on goods.

What is a trade deficit, and do tariffs close it?

A trade deficit means a country imports more goods and services in value than it exports. It is an accounting result of national saving and investment as much as of trade barriers: a country that invests more than it saves runs a current account deficit and imports capital. Economists across the spectrum generally find that tariffs shift the composition of trade between partners more than they change the overall balance, though they disagree about magnitude.

Who can challenge a tariff?

Importers can contest classification, valuation and exclusion decisions at the Court of International Trade, with appeals to the Federal Circuit and potentially the Supreme Court. Congress can repeal or narrow the delegated authority by statute, though such a bill would face a presidential veto. Trading partners can bring disputes at the World Trade Organization, whose appellate body has lacked a quorum since 2019, limiting enforcement.

Primary sources