How Incorrect HS Codes Lead to Unexpected Tariff Charges (And How to Avoid Them)

Understanding HS Codes and Tariffs

In international trade, the Harmonized System (HS) functions as the backbone of product classification. Each good shipped across borders is assigned a six-digit code defined by the World Customs Organization, which sets the baseline. Countries then expand this foundation into more granular national codes. In the US, the Harmonized Tariff Schedule (HTSUS) adds four more digits to determine duty rates and admissibility controls.

The system’s meant to be standardized, but in practice the rules are applied differently depending on differing interpretations, customs rulings, or precedents set at individual ports. Using the incorrect code might not seem consequential at first, but it can set off a chain reaction of duty hikes, compliance flags, or clearance delays. And in today’s climate of intensified enforcement and tariff layering, those missteps can not only slow shipments, but also chip away at your bottom line.

Is HS Code and Tariff Code the Same?

The two terms often get tossed around like they mean the same thing, but they’re not identical.  The HS code refers strictly to the international six‑digit standard. It categorizes products broadly: machines, fabrics, vehicles, etc. Tariff codes, in contrast, are country‑specific extensions that define duties and regulations. In the US, that’s the 10‑digit HTSUS code. 

So, HS codes and tariff codes are part of the same system but serve different purposes. It’s a bit like knowing a car’s make versus its VIN number. It’s close, but not close enough when precision is required. Not understanding this nuance can lead importers to select incomplete or inappropriate codes.  

Common Mistakes in HS Code Classification

One common cause of HS code misclassifications is relying on superficial product descriptions. Importers may default to a code that sounds right or matches a similar item rather than consulting detailed technical specifications or official classification guidance. Issues can also arise when companies recycle old codes across product lines without checking if new materials or origins shift the classification. Even small design updates, like a change in material composition or added electronic functionality, can alter a product’s correct category. Without a proper analysis of material composition, function, or use, it’s easy to fall into a tariff category that doesn’t apply. Misclassified goods often delay customs clearance and lead to over‑ or under‑payment of duties, exposing businesses to penalties, fines and audits. 

There’s also a persistent misconception that suppliers abroad provide correct codes by default. In practice, exporters may follow their own country’s classification schemes or base their codes on outdated data. These codes aren’t always valid for US imports, yet they often get copied into customs entries without review. And as CBP rulings evolve, what was compliant three years ago may now be misaligned with current interpretations. The burden remains on the importer of record to make sure the code is right.  

How Incorrect HS Codes Lead to Higher Tariff Charges

Assigning the wrong HS code can trigger tariff rates meant for different industries or origins. Within the US HTS system alone, there are over 17,000 unique classification codes across 99 chapters, each requiring precise interpretation. Misidentifying just one digit can pull your product into a rate line with surcharges that double or triple the duty. For example, categorizing smart home devices under general electronics instead of telecommunications equipment can double the duty rate; misidentifying components with steel or aluminum content can pull your product into Section 232 tariff categories even if that wasn’t the intent. And since 2018, layers of special duties, like anti‑dumping or Section 301 retaliatory tariffs, have created a minefield where even minor misclassifications can amplify landed costs. A 3% baseline tariff might balloon to 28% once trade remedy surcharges apply.

The 2025 repeal of de minimis treatment has only raised the stakes. Now even low‑value shipments face full inspection and duty collection. Every shipment, no matter the price tag, now represents a potential compliance liability.

Compliance Risks and Penalties for Wrong HS Codes

The financial consequences of HS code misclassification don’t just end with overpaid duties. Under federal law, CBP can issue penalties for classification errors, especially if the error reflects negligence, recklessness or fraud. For routine violations, fines may reach 20% of the declared value; in more severe cases they may rise to 40% or beyond. 

Beyond fines, repeated errors can lead to increased scrutiny, with companies subjected to periodic audits, compliance notifications and even placement in CBP’s Focused Assessment program. And customs brokers face their own risks: misclassification on behalf of a client may expose them to license suspension or regulatory warnings.

Best Practices to Ensure Accurate HS Code Use

Importers should ensure that each product’s code is based on its physical characteristics, functional use and any applicable CBP rulings. If there’s any uncertainty about the right classification for a product, binding rulings can offer clarity by allowing an importer to get binding classification decisions before the product enters the US. 

Businesses should also invest in training: cross‑functional teams need a clear understanding of how the HS is structured, how to interpret classification rules and how to monitor regulatory changes. Conducting regular internal audits and maintaining organized product documentation helps catch errors before they reach customs.

Technology has also made significant strides in helping trade professionals classify products quickly and accurately. AI‑enabled classification platforms, like Gaia Dynamics’ Classification Engine, can analyze technical specs, product descriptions and regulatory language to recommend more targeted HS codes.

Conclusion

Whether a shipment is worth $80 or $8 million, its HS code decides the duties, taxes, and compliance risks attached to it. Using an incorrect code might seem like a minor slip-up, but it can become a very expensive liability in a system that’s being watched more closely than ever. 

Getting classification right isn’t just about clearing customs smoothly. It’s about protecting margins, avoiding penalties, and keeping supply chains moving without the unnecessary disruption.