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Navigating Tariff Shifts: How U.S. Foreign-Trade Zones Help Supply Chains Stay Resilient

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Navigating Tariff Shifts: How U.S. Foreign-Trade Zones Help Supply Chains Stay Resilient

As global trade faces uncertainty amid shifting tariffs, economic nationalism, and ongoing geopolitical friction, U.S. businesses are increasingly turning to Foreign-Trade Zones (FTZs) as a powerful tool to remain competitive. The U.S. is home to more than 230 approved FTZ projects and nearly 400 subzones, collectively supporting 600+ warehouses across the country. These special zones offer substantial advantages to importers, manufacturers, and logistics providers—particularly in times of economic turbulence.

In this article, we’ll explore what FTZs and subzones are, where they are located, how they’re used in logistics and manufacturing, and how they may help U.S. supply chains offset the impact of new or changing tariff regimes.

What Are Foreign-Trade Zones (FTZs)?

A Foreign-Trade Zone (FTZ) is a designated geographic area within the United States that operates under the oversight of U.S. Customs and Border Protection (CBP) but is considered outside of U.S. customs territory for the purpose of tariff laws. Zone grantees are responsible for establishing and operating these zones, and each zone site must be approved and designated for special customs procedures.

Zone sites must be located within or adjacent to a CBP port of entry, ensuring proper oversight and compliance with regulations.

In an FTZ, companies can:

  • Import goods without paying customs duties until (or unless) the goods enter U.S. commerce.
  • Store, sort, test, repackage, or manufacture goods without immediate customs involvement.
  • Potentially reduce or avoid duties altogether if goods are re-exported.

This makes FTZs a valuable asset for companies managing complex international supply chains, particularly in sectors like:

  • Automotive
  • Aerospace
  • Consumer electronics
  • Pharmaceuticals
  • Apparel and textiles
  • Logistics and e-commerce fulfillment

Introduction to FTZs

Understanding Subzones: FTZs Within FTZs

A subzone is essentially a customized extension of a general-purpose FTZ. While a general-purpose FTZ is typically a warehouse or industrial park near a port of entry, a subzone is site-specific and tied to a single company’s operations—usually a large-scale manufacturer that has been granted zone status.

Zone activity remains under the oversight of U.S. Customs and Border Protection, ensuring compliance with established procedures while promoting economic activity. These subzones allow companies to receive FTZ benefits on their own premises, which is especially useful for manufacturers with multiple inputs and export activity. Subzones are commonly used by companies like automakers, semiconductor producers, and pharmaceutical firms.

Establishment and Administration of FTZs

The establishment and administration of FTZs are governed by the Foreign Trade Zones Act and regulated by the Foreign Trade Zones Board (FTZ Board) and U.S. Customs and Border Protection (CBP). The FTZ Board is responsible for reviewing and approving applications for FTZ designation, while CBP oversees the activation and operation of FTZs. To establish an FTZ, a company must apply to the FTZ Board and obtain a grant of authority, which includes limitations and conditions specified in the FTZ regulations. The Alternative Site Framework (ASF) is an optional approach to designation and management of zone sites, allowing for more flexibility in the location and operation of FTZs.

Types of FTZs

There are several types of FTZs, including general-purpose zones, special-purpose zones (also known as subzones), and usage-driven sites. General-purpose zones are typically large warehouses or industrial parks that provide leasable storage and distribution space to multiple users. Special-purpose zones, on the other hand, are designated for specific companies or industries and are often used for manufacturing, processing, or other specialized activities. Usage-driven sites are designated for specific companies or projects and are often used for temporary or seasonal operations. Each type of FTZ has its own unique characteristics and benefits, and companies can choose the type that best suits their needs and operations. By understanding the different types of FTZs and their benefits, companies can make informed decisions about how to utilize these zones to reduce costs, increase efficiency, and improve their competitiveness in the global economy.

FTZs Across the U.S.: Where Are They Located?

FTZ location global warehouse near port

With over 230 FTZ projects and nearly 400 subzones designated sites, FTZs are strategically placed near major ports of entry, including:

  • Los Angeles/Long Beach, CA (FTZ 202)
  • Houston, TX (FTZ 84)
  • Savannah, GA (FTZ 104)
  • Chicago, IL (FTZ 22)
  • Newark/New York, NY (FTZ 49)
  • Miami, FL (FTZ 281)
  • Seattle, WA (FTZ 5)

These zone projects facilitate international trade by providing tariff and tax benefits, enhancing trade competitiveness.

Each zone is administered by a local grantee—usually a port authority, economic development agency, or chamber of commerce—who manages zone operations under federal regulation.

How FTZs Support Logistics and Supply Chain Operations

FTZs offer a host of operational benefits for logistics and supply chain professionals by reducing tariff burdens on the importation of foreign inputs. These zones can handle both foreign and domestic merchandise, allowing for storage, examination, and exhibition under U.S. Customs and Border Protection oversight.

1. Duty Deferral

Imported goods stored in an FTZ, such merchandise, are not subject to duties until they are formally entered into U.S. commerce. Imported merchandise can receive privileged foreign status, affecting the duties and taxes assessed upon its transfer for U.S. consumption. This allows companies to improve cash flow by deferring payments until the product is sold or shipped.

2. Duty Elimination on Re-Exports

If imported goods are exported from an FTZ without ever entering U.S. commerce, it can encourage foreign commerce by providing financial incentives. Additionally, businesses can benefit from the FTZ program as it allows them to eliminate duty on imports.

3. Inverted Tariff Benefits

If the finished product assembled or manufactured in an FTZ has a lower duty rate than its individual components, the importer pays the lower finished-product rate, reducing the overall duties paid. Other benefits of operating within FTZs include enhanced operational resilience, better compliance, and increased control and transparency in supply chain management. This is known as inverted tariff relief.

4. Operational Efficiency

FTZs allow companies to streamline customs clearance through efficient zone procedures, reduce paperwork, and consolidate entries—meaning less administrative overhead and faster throughput.

Proper oversight measures are essential, especially when establishing subzones outside of a designated distance from a U.S. Customs and Border Protection (CBP) port of entry.

5. Inventory Control and Security

Since FTZs are under the scrutiny of CBP, a zone user must implement strict inventory control systems—which can also improve supply chain visibility, reduce shrinkage, and support compliance goals.

Zone users, whether public or private corporations, benefit from the logistical and financial advantages provided by these zones.

6. Reduced Merchandise Processing Fees

Companies using FTZs may benefit from a weekly entry process, lowering the cost of Merchandise Processing Fees (MPFs) that are otherwise calculated per shipment and are typically subject to excise tax.

Additionally, while merchandise is in the zone, it is exempt from U.S. duty and federal excise tax, providing significant financial advantages for managing taxes on goods transferred for consumption or exported.

The Strategic Value of FTZs in a Shifting Trade Landscape

Recent years have brought rapid shifts in trade policy, from a U.S.-China trade war to disruptions stemming from the COVID-19 pandemic, and now, tariff adjustments tied to economic or political agendas, making U.S. operations more appealing compared to foreign alternatives. The foreign trade zones program, established by Congress, allows for delayed or reduced duty payments on foreign merchandise, offering advantages to companies looking to keep their operations in the U.S. These conditions have created a volatile landscape for importers and manufacturers.

FTZs as a Shield from Tariff Volatility

When new tariffs are announced, companies that operate within FTZs can delay or avoid paying duties until products are distributed domestically—giving them breathing room to adapt pricing or sourcing strategies by bypassing formal customs entry procedures. Once foreign merchandise enters customs territory for domestic consumption, the importer can choose to pay duties based on the original materials or the finished products.

In situations where tariffs are reversed, paused, or modified, companies may never have to pay the duty at all if the product hasn’t yet entered U.S. commerce.

Warehouse as a Buffer

Many FTZ operators use 600+ warehouses nationwide to store goods in a duty-free environment while awaiting demand, regulatory clarity, or more favorable trade terms, including those operating distribution facilities. Facilities remain under the jurisdiction of various governmental bodies, ensuring regulatory oversight and operational support. This flexibility is invaluable in times of uncertain global trade flows.

FTZs and E-Commerce Fulfillment

The rise of direct-to-consumer (DTC) business models and cross-border e-commerce has also made FTZs more attractive to 3PLs and fulfillment centers. A usage-driven site can be particularly beneficial for these operations. Zone designation, especially under the Alternative Site Framework (ASF), streamlines the process for obtaining necessary approvals for these sites. Goods imported into FTZ warehouses can be:

  • Held until orders are placed
  • Repackaged or kitted on-site
  • Shipped directly to end customers

This setup is ideal for e-commerce companies importing large volumes of goods from Asia or Europe, especially those who want to test demand before committing to U.S. market entry.

Case Study Example: FTZ Use in Action

FTZ foreign trade zone container ship unloading at port for logistics and supply chain efficiency

Let’s say a U.S.-based electronics company imports components from Vietnam, Japan, and Mexico for assembly in a Texas facility. Instead of paying duties on every incoming shipment, the company activates FTZ space tied to its facility. The zone status of the merchandise is managed to comply with federal guidelines, ensuring eligibility for various operations.

  • Brings all components into an FTZ subzone tied to its facility.
  • Assembles the finished product (e.g., smart home device).
  • Exports 40% of the finished goods to Canada and the EU.
  • Releases the remaining 60% into the U.S. market.

Result: The company only pays duty on the 60% that enters U.S. commerce—and at a reduced rate, thanks to inverted tariffs.

Are FTZs Right for Your Business?

FTZs may offer strategic cost savings and operational flexibility if your company can obtain FTZ designation:

  • Imports large volumes of raw materials or finished goods
  • Exports finished products internationally
  • Assembles or repackages goods in the U.S.
  • Needs to offset the impact of recent or upcoming tariffs

As a zone user, you can apply for specific statuses, such as zone restricted status, and benefit from the financial advantages and operational processes available within the FTZ.

Working with a zone grantee, customs broker, or FTZ consultant can help you assess feasibility and navigate the application process, which includes approval from CBP and the local Foreign-Trade Zones Board.

Challenges and Considerations

While FTZs offer compelling benefits, they are not plug-and-play. Companies must navigate zone procedures, which allow for the movement of merchandise without the usual Customs and Border Protection (CBP) entry processes and duties. Additionally, companies must be aware of the zone restricted status, indicating that merchandise cannot be returned to regular customs territory for consumption unless deemed in the public interest by the Foreign-Trade Zones Board.

Companies must:

  • Implement robust inventory and compliance systems
  • Be prepared for CBP audits
  • Navigate administrative and operational overhead
  • Understand that not all products or industries may benefit equally

Looking Ahead: FTZs and the Future of Global Trade

As the global trade landscape continues to shift—whether due to tariff changes, nearshoring strategies, or growing demand for resilient, diversified supply chains—the foreign trade zone program is likely to play an even bigger role in how companies manage uncertainty. Zone projects, as designated areas that facilitate international trade by providing tariff and tax benefits, are integral to this strategy.

With more than 600 warehouses already leveraging FTZ status, and with new projects constantly under review, these zones are proving to be more than a tax strategy—they’re a core component of a smarter, more flexible logistics operation.

In an era where tariffs can change with a tweet, and global disruptions are the new norm, FTZs offer U.S. businesses a powerful way to remain agile. From duty deferral and cost reduction to faster fulfillment and better inventory control, Foreign-Trade Zones help logistics teams manage risk and preserve margin.

If your organization hasn’t yet considered FTZ participation, now may be the time—before the next wave of tariff changes hits.