Context:

Foreign Trade Zones (FTZs) across the United States, originally established during the Great Depression, have gained renewed importance as companies seek to avoid tariffs imposed by recent trade policies. These zones, numbering 374, allow businesses to store imported goods duty-free until they are sold domestically or exported, with a significant increase in interest following the announcement of widespread tariffs. FTZs provide a temporary relief from tariffs and facilitate cash flow for companies amidst economic challenges, although recent changes require companies to pay higher tariff rates on inputs rather than finished goods. The zones have become economic multipliers, especially in smaller communities, as seen in Phoenix, where employment and wages have notably increased. Despite their benefits, FTZs face challenges under current trade regimes, complicating operations for some companies and impacting their global competitiveness.

Dive Deeper:

• Foreign Trade Zones (FTZs) in the United States were initially created in 1934 to help companies remain competitive during the Great Depression, and they currently exist in every state and Puerto Rico, allowing duty-free importation and storage of goods.

• Interest in FTZs has surged, with the number of businesses utilizing these zones quadrupling since tariffs were announced on nearly every country, as companies seek to defer tariff payments until products are sold in the U.S. or exported.

• FTZs are highly secure and strategically located near Customs and Border Protection ports, offering temporary relief from tariffs and enabling businesses to improve cash flow during economic uncertainty.

• The city of Phoenix, acting as a grantee, has successfully leveraged its FTZ to attract businesses, resulting in significant economic benefits including job creation and increased average wages, showcasing how FTZs can act as economic multipliers.

• Recent trade policies have complicated FTZ operations by requiring companies to pay tariff rates on inputs rather than the finished products, which often results in higher costs and impacts the competitiveness of businesses using these zones.

• Companies like Audio-Technica use FTZs to defer tariff payments on imported goods until they choose to release them for U.S. commerce, allowing them to manage costs and maintain financial flexibility.

• Despite their advantages, the restrictions imposed by current trade policies have led to dissatisfaction among some companies, as they struggle to maintain their competitiveness and cost-effectiveness within the global market.