Explainer · Economy

How Tariffs Work, and Who Actually Pays Them

Last reviewed: September 26, 2026

Short answer: A tariff is a tax on imported goods. The U.S. importer of record pays it to U.S. Customs and Border Protection (CBP) when goods enter the country. Who ultimately bears the cost depends on prices: Federal Reserve Bank of New York research on the 2025 tariffs found import prices rose by nearly the full tariff, so foreign exporters bore little of it, and about 26 percent of the tariff increase passed through to U.S. consumer prices within about a year. The Constitution gives Congress the tariff power, and in 2026 the Supreme Court held that one emergency law, IEEPA, does not let a President impose tariffs.

What a tariff is

The Congressional Research Service (CRS) defines it simply: “A tariff is a tax levied on imported goods and services.” Tariffs were often the main source of federal revenue through the late nineteenth century; today, CRS says, they are typically used to protect certain industries, advance foreign policy goals or gain leverage in trade negotiations.

Who pays at the border

When goods arrive, they are classified under the Harmonized Tariff Schedule of the United States. Importers self-classify and declare the value or quantity of their goods; CBP reviews the paperwork, audits occasionally, collects the tariffs and deposits the revenue in the Treasury’s General Fund (CRS). CBP tells importers that even when using a customs broker, “the importer of record, is ultimately responsible for the correctness of the entry documentation presented to CBP and all applicable duties, taxes and fees.”

Who bears the cost

Paying the bill and bearing the cost are different things. A Federal Reserve Bank of New York staff report (No. 1201, revised September 2026) studied the 2025 tariffs. Its findings:

• Tariffs were passed through nearly fully into the dollar prices U.S. importers paid, “so that foreign exporters bear little of the burden,” consistent with earlier research.
• “About 26 percent of the tariff increase passes through to consumer prices,” measured relative to less-exposed goods, over a twelve-month horizon.
• Tariffs also raise prices of goods made at home, through costlier imported parts and weaker import competition.

The report notes that its views are the authors’, not necessarily those of the New York Fed or the Federal Reserve System. For how prices feed into interest rates, see how the Fed sets interest rates.

Who has the power to set tariffs

Article I, Section 8 gives Congress the power “To lay and collect Taxes, Duties, Imposts and Excises,” requires that “all Duties, Imposts and Excises shall be uniform throughout the United States,” and gives Congress the power “To regulate Commerce with foreign Nations.” CRS notes that Congress has “partially delegated” the tariff power to the President. The Tariff Act of 1930, known as Smoot-Hawley, “was the last tariff act in which Congress set rates.”

Statutes that expressly let the executive branch impose duties include, as described in the Supreme Court’s 2026 opinions:

• Section 232 of the Trade Expansion Act of 1962 (national security);
• Section 201 of the Trade Act of 1974 (imports causing or threatening “serious injury” to a domestic industry);
• Section 301 of the Trade Act of 1974 (unfair foreign trade practices, acted on through the U.S. Trade Representative); and
• Section 122 of the Trade Act of 1974 (a “temporary import surcharge” to deal with large and serious balance-of-payments deficits).

The 2026 Supreme Court ruling

In Learning Resources, Inc. v. Trump, argued November 5, 2025, and decided February 20, 2026, the Court held: “IEEPA does not authorize the President to impose tariffs.” The tariffs at issue included duties imposed to address drug trafficking and “reciprocal” tariffs aimed at trade deficits.

Chief Justice Roberts wrote the opinion of the Court on the central holding, joined by Justices Sotomayor, Kagan, Gorsuch, Barrett and Jackson. Quoting James Madison in Federalist No. 48, the opinion says the Framers gave Congress “alone . . . access to the pockets of the people.” It adds that the Framers “did not vest any part of the taxing power in the Executive Branch” and that the government conceded the President “enjoys no inherent authority to impose tariffs during peacetime.” Justice Kavanaugh, joined by Justices Thomas and Alito, dissented, arguing that the power to “regulate . . . importation” has long been understood to include duties. Justice Thomas also filed his own dissent. How the Court takes and decides cases is explained in how the Supreme Court decides cases.