Why Tariffs? Purpose, Costs and 2026 US Rates Explained

Governments impose tariffs for four reasons: to raise revenue, to shield domestic producers from lower-priced imports, to create leverage in trade negotiations, and to pursue national-security or supply-chain goals such as keeping steel or semiconductor capacity onshore. The mechanism is the same in every case: a tariff is a tax on imported goods, legally owed by the US importer of record and paid to Customs and Border Protection when the goods enter the country, which is why the Tax Foundation's tariff tracker records $264 billion in US customs duties collected in calendar year 2025 against $78.9 billion in 2024.

Quick answer

• Revenue: customs duties rose from $78.9 billion (2024) to $264 billion (2025) on roughly $3.4 trillion of goods imports, per the Tax Foundation tracker.
• Who pays first: the importer of record pays at entry. Foreign governments do not write the check, though they can be pressured indirectly through lost sales.
• Current level: the Penn Wharton Budget Model put the average effective tariff rate at 6.7% in July 2026, down from a 2025 peak, versus 2.3% in January 2025.
• Legal authority decides everything: the Supreme Court struck down the IEEPA tariffs on February 20, 2026; the Section 122 replacement expired July 24, 2026 under a statutory 150-day limit; Section 232 and Section 301 duties continue.
• Household cost is an estimate, not a bill: the Tax Foundation estimates an average tax increase of $1,000 per household in 2025 and $820 in 2026.

The four reasons governments use tariffs

Revenue. A tariff is a consumption-style tax that collects at the border, so it is administratively easy. The 2025 US experience shows the scale: customs duties more than tripled year over year, according to the Tax Foundation's tracker.

Protection. Raising the landed cost of imported steel, aluminum or vehicles lets domestic producers charge more or hold share. This is the stated purpose of Section 232 of the Trade Expansion Act of 1962, which ties import restrictions to national security and now covers steel and aluminum and their derivatives, autos and parts, trucks, copper, lumber and semiconductors, according to Global Trade Alert's review of Section 232 actions.

Leverage. Tariffs can be switched on and off by proclamation far faster than Congress can legislate, which makes them a bargaining tool. That speed is also their legal weak point, as 2026 demonstrated.

Security and supply chains. Section 232 is the authority used when the argument is that dependence on foreign supply is itself the risk. Global Trade Alert counted eight unresolved Section 232 investigations as the post-IEEPA period began, meaning the product scope can keep expanding without new legislation.

These rationales conflict. A tariff high enough to eliminate imports of a product raises no revenue from it; a tariff low enough to keep revenue flowing keeps the competing imports arriving.

How a tariff is actually collected

Three facts determine what is owed on a shipment: the product's classification in the Harmonized Tariff Schedule, its country of origin, and its customs value. Duty is generally a percentage of that customs value, and separate authorities stack on top of each other, so one entry can carry a standard most-favored-nation rate plus a Section 232 or Section 301 duty.

Two practical consequences follow. First, the cash leaves the importer's account at entry, before the goods are sold, so tariffs hit working capital before they hit shelf prices. Second, origin rules matter more than shipping routes: goods shipped from a third country but made in a tariffed origin are still tariffed, and goods that qualify under a trade agreement can escape a headline rate entirely. The Penn Wharton Budget Model reported that 80.2% of imports from Canada and Mexico claimed a USMCA exemption in July 2026.

The numbers that matter as of September 2026

The table below uses effective tariff rates, meaning duties actually collected divided by import value, from the Penn Wharton Budget Model update published September 9, 2026 (data through July 2026).

Effective rates are lower than headline rates because of exemptions, agreement-qualifying goods and shifts in what importers buy. A Brookings contributor writing after the February 2026 decision described the US average effective tariff rate climbing to nearly 17% at its peak, the highest since the early 1930s, and cited Federal Reserve Bank of New York research finding that nearly 90% of those costs were borne by American firms and consumers. The Tax Foundation's collections-based figure for calendar 2025 was 7.7%, the highest since 1947. Both can be true: they are different measures, one weighting announced rates across trade flows and one dividing duties collected by imports.

Worked example: one shipment of imported SUVs

This is illustrative arithmetic using published rates, not a quote from a customs broker. Assume an importer of record enters 10 SUVs with a customs value of $32,000 each, and that the Section 232 automotive rate of 25% reported by Global Trade Alert applies to the full customs value.

• Entered value: 10 × $32,000 = $320,000
• Section 232 duty at 25%: 0.25 × $320,000 = $80,000, or $8,000 per vehicle
• Cash timing: the $80,000 is due at entry, before any vehicle is sold

Assumptions: no USMCA or content-based adjustment applies, and the example excludes the standard MFN duty, merchandise processing fees, brokerage and freight. Those omissions push the real figure up, not down.

Who absorbs the $8,000 is a pricing decision, not an arithmetic result. If it is fully passed through, the retail price rises $8,000; if half is absorbed, buyers pay $4,000 and $4,000 comes out of importer and dealer margins. Those splits are assumptions used to show the range.

A reality check on the statutory rate: Penn Wharton's July 2026 effective rate for automotive vehicles was 13.0%, about half of 25%, because exempt and agreement-qualifying entries dilute the average. Applying 13.0% to a $32,000 vehicle gives about $4,160 — our calculation on their published rate, not a Penn Wharton per-vehicle estimate.

Scaling the same logic: the effective rate rose 4.4 percentage points between January 2025 (2.3%) and July 2026 (6.7%). Applied to the $3.4 trillion of goods imports the Tax Foundation recorded for 2025, that is roughly $150 billion a year in additional duties, assuming import volumes hold. For comparison, the Tax Foundation's own modeled figure is an average tax increase of $820 per US household in 2026, down from $1,000 in 2025 because, in its words, the new tariffs have not fully replaced the struck-down IEEPA tariffs.

Why the legal authority matters more than the headline rate

In 2026 the answer to "why tariffs" became partly a question of which statute. The table summarizes the state of play.

The practical lesson: emergency-style authorities are fast but fragile, while investigation-based authorities such as Sections 232 and 301 take longer to impose and are harder to undo. A tariff strategy built on the first can vanish in a single ruling; the Penn Wharton data show the average effective rate falling through mid-2026 for exactly that reason.

Five common mistakes

1. Assuming the exporting country pays. The duty is owed by the US importer of record at entry. The exporter's exposure is indirect, through lost orders or negotiated price concessions.

2. Reading a headline rate as your rate. A 50% steel tariff and a 22.8% effective rate on Chinese goods are different kinds of number. Your rate depends on HTS classification, origin and eligibility for an exemption.

3. Expecting a court ruling to refund money automatically. Holland & Knight noted that CBP cannot stop collecting on the strength of an opinion alone and needs a directive from the executive branch. Penn Wharton noted that the February 2026 decision did not explicitly order refunds, and that importers generally have 180 days after goods are liquidated to protest and request refunds from CBP. Refunds still moved real money: the Tax Foundation reported that refunds accelerated in May 2026 to the point that the government returned more than it collected that month.

4. Treating tariff policy as stable. Section 122 carried a 15% ceiling and a 150-day clock written into the statute. Anyone who priced a 12-month contract off it was pricing off a deadline.

5. Converting a tariff into a price increase one-for-one. Pass-through depends on margins, competition and substitution. The NY Fed research cited by Brookings points to most of the cost landing on US firms and consumers, but "most" is not "all," and the split differs by product.

What to do next

If you import or resell goods, pull the HTS classification and country of origin for your top three products and list every authority that currently stacks on them; that single exercise determines both your duty bill and whether you have a refund claim within the 180-day post-liquidation protest window. If you are only a consumer of the news, track the effective tariff rate rather than the announced rate — Penn Wharton updates it monthly, and it is the number that reflects what is actually being collected.