Foreign Trade Zones Surge as U.S. Tariff Pressures Mount: How Companies Are Avoiding Costly Duties

U.S. Companies Turn to Foreign Trade Zones as Tariffs Rise

As steep import tariffs redefine global trade dynamics, American businesses are increasingly embracing a lesser-known—but entirely legal—strategy to protect profits and preserve cash flow: operating within Foreign Trade Zones (FTZs).

These secure, federally approved zones—first established in 1934 to cushion the effects of the Great Depression—allow companies to import goods and components without immediately paying U.S. tariffs. Only when those products leave the zone and enter U.S. commerce do import duties apply. If the goods are exported instead, companies avoid tariffs altogether.

Today, there are 374 active FTZs across the U.S. and Puerto Rico, supporting more than half a million jobs. They’re used by both global multinationals and local manufacturers, offering a powerful buffer against rising costs driven by Washington’s aggressive trade agenda.

Interest in FTZs Is Surging

According to logistics firm Descartes Systems Group, demand for FTZ setup services has quadrupled since President Trump unveiled sweeping "reciprocal" tariffs in April, affecting imports from nearly every U.S. trading partner.

“The FTZ framework is gaining attention again because we’re back in an environment where tariffs matter—just like in the 1930s,” said Jackson Wood, Director of Industry Strategy at Descartes.

Commerce Department data shows that nearly $1 trillion worth of goods flowed through U.S. FTZs in 2023, accounting for almost one-third of total U.S. imports. That volume is expected to increase in 2025 as companies seek alternatives to direct import channels.

How FTZs Work—and Why They Matter Now

To qualify, FTZs must operate within 60 miles of a U.S. Customs port of entry and can vary in size from a single warehouse bay to sprawling multi-tenant industrial campuses. In practice, they allow companies to store, process, and even manufacture goods tariff-free until those items enter the domestic market.

Take Audio-Technica, the Japanese audio equipment maker. The company recently opened its second U.S.-based FTZ warehouse in San Diego to better manage its exposure to new tariffs on products from China and Japan.

“With tariffs rising, this gives us flexibility. We can defer duties until we actually sell into the U.S. market,” said Dan Ratley, Executive Director of Supply Chain at Audio-Technica.

By leveraging FTZs, companies gain valuable liquidity and risk management tools—particularly as some tariff rates soar to as high as 70% on materials like steel and aluminum.

Local Economic Boosts from FTZs

Beyond corporate cost savings, FTZs also act as economic engines for U.S. communities.

In Phoenix, Arizona, Zone 75 now supports more than 75,000 jobs, and city officials credit the FTZ with helping attract global manufacturers and logistics hubs. According to Christine Mackay, Director of Economic Development for Phoenix, each FTZ job creates three to six additional local jobs, with average salaries rising from $30,000 a decade ago to $84,000 today.

“We’ve used our grantee status strategically to bring in high-impact employers and generate sustained local growth,” Mackay said.

Policy Shift Threatens FTZ Advantages

Despite their appeal, recent changes under the Trump administration have eroded one of the FTZ program’s core benefits.

Previously, companies that imported components into FTZs and used them to assemble finished goods only had to pay duties on the final product—often a lower rate than on individual parts. But a new executive order in April reversed that rule.

Now, businesses must pay tariffs based on the imported input’s classification, even if the final product is less tariffed. For instance, if a company imports a turntable made of steel and aluminum into an FTZ, it could face a 70% duty, even if the finished good’s normal tariff is just 10%.

“This is a massive policy shift,” said Melissa Irmen, Director of Advocacy for the National Association of Foreign-Trade Zones (NAFTZ). “It strips away the very benefit that made FTZs an effective tool for global competitiveness.”

What's Next for FTZs?

As businesses re-evaluate global supply chains and domestic production strategies, FTZs remain an attractive—but increasingly complex—option.

“We have members who are rethinking long-term investment plans,” Irmen said. “Some may shift operations abroad if the U.S. no longer offers a tariff environment they can compete in.”

While some zones remain cost-effective under the new rules, companies relying on imported metals or electronic parts are increasingly feeling the pressure.

With Trump’s reciprocal tariff window set to expire in July and potentially higher tariffs looming in August, FTZs could continue to gain traction—or face further policy hurdles.