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Industrials
As the U.S. continues to navigate a complex landscape of trade policies and tariffs, businesses are seeking innovative strategies to mitigate these costs. One key approach gaining attention is the utilization of Foreign Trade Zones (FTZs), which offer a mechanism for companies to delay or avoid paying tariffs on imported goods. With new tariffs on imports from China, Mexico, and Canada looming, business owners are racing against time to leverage these zones to protect their bottom lines.
Foreign Trade Zones are designated areas within the United States that are treated as outside U.S. Customs territory for tariff purposes. This means that goods entering an FTZ are not subject to U.S. Customs duties until they leave the zone and enter U.S. Customs territory. This setup allows businesses to store goods without immediate tariff obligations and to defer paying duties until the goods are formally entered into U.S. commerce[1].
FTZs offer several benefits to companies facing rising tariff costs:
Recent trade policies have significantly increased tariff costs for U.S. businesses. The Trump administration’s tariffs on Chinese goods, for instance, started at 10% and have increased to 20% as of March 2025, with some products facing combined duties of up to 45%[4][5]. Additionally, there are proposed tariffs on imports from Canada and Mexico, which have been paused but are expected to resume[5]. These measures have prompted many companies to reassess their supply chains and seek alternatives to reduce costs.
To manage the rising tariff landscape, businesses are adopting several strategies:
Supply Chain Diversification: Many companies are actively diversifying their supply chains to reduce dependency on high-tariff countries. This involves identifying new suppliers from countries with more favorable trade agreements or where products are exempt from certain tariffs[3].
Tariff Exclusion Requests: Companies may apply for exclusions from certain tariffs under Section 301 by demonstrating that alternative sourcing options do not exist and providing economic impact assessments[5].
Using FTZs: By utilizing FTZs, businesses can delay paying tariffs until goods are sold within the U.S., reducing immediate cash outlays and improving cash flow management[1].
Given the recent changes, understanding the concept of "Privileged Foreign Status" (PF status) is crucial for goods entering FTZs. The PF status locks in the duty rate of an item based on its condition and origin at the time it enters the FTZ. This means that any subsequent processing or manufacturing activities within the FTZ will not change the duty rate applicable when the item is removed from the zone and entered into U.S. commerce. This status helps businesses manage their tariff liabilities more predictably[2].
For businesses looking to take advantage of FTZs, the process involves several steps:
While FTZs offer significant benefits, there are also challenges and costs associated with establishing and maintaining them. Application fees, operational costs, and the need for detailed compliance with U.S. Customs regulations are among the considerations businesses must weigh[1]. However, for companies facing high tariffs, these costs can be well worth it as part of a broader strategy to protect profit margins and maintain competitiveness in the global marketplace.
As tariffs continue to reshape the U.S. trade landscape, the strategic use of Foreign Trade Zones is becoming increasingly important for businesses seeking to manage costs effectively. With new tariffs looming on imports from major trading partners, the rush to utilize FTZs reflects a broader trend toward innovative supply chain management and tariff mitigation strategies. Whether through FTZs, bonded warehouses, or diversified supply chains, U.S. businesses are adapting to the evolving global trade environment with resilience and creativity.
