Foreign Trade Zones (FTZs) are an extremely important tool in our Mission to help make American business more competitive. These zones were created during the Great Depression in 1934. They allow businesses to bring in certain products and materials duty-free until those goods are sold into the U.S. market. This robust economic engine supports 114,000 jobs in Maryland and is the backbone of our nation’s economy. FTZs are really popular—they’re used in every state and Puerto Rico. Zeroing in on FTZs As of 2023, the country can proudly claim 374 Foreign Trade Zones (FTZs). These zones move almost $1 trillion of our favorable balance of imported goods.
Part of FTZs’ importance reaches well beyond duty-free imports. These zones create a protective bubble for businesses to produce and assemble products and reship them directly to consumers. They range widely in size from the small rooms of warehouse space where safety testing occurs to large experimental spaces that can cover hundreds of acres. For starters, FTZs must be located within 60 miles or a 90-minute drive of a Customs and Border Protection port of entry. This new requirement will help ensure robust and vigorous enforcement.
The Historical Context of Foreign Trade Zones
The roots of Foreign Trade Zones stretch back to 1934. They were born during a time when expensive high tariffs were blocking important trade and preventing the nation’s economic recovery from the Great Depression. The explicit purpose of designating these zones was for the federal government to stimulate economic activity by giving businesses within them a competitive advantage.
“Foreign trade zones were first initiated within the United States back in 1934, which coincidentally was the last time that tariffs were as prominent and frankly as impactful as they are now.” – Jackson Wood
By enabling companies to defer tariffs until products are sold domestically, FTZs serve as a vital resource for businesses looking to remain profitable amid fluctuating global trade dynamics. In some states, the zones have broadened their reach immensely. Today, firms are able to bring in and produce items literally inside their borders.
Perhaps best of all, the impact of FTZs can be seen all over the country. Today, they put more than half a million people to work, investing billions into local economies along the way. Just in Phoenix’s Zone 75, about 75,000 people work within the zone, highlighting the great influence FTZs have on creating jobs.
Economic Impact and Job Creation
FTZs encourage economic development by creating jobs and thus helping stimulate localities’ economies. In fact, for every job created in an FTZ, three to six additional jobs are created within the surrounding community. Cities prosper as these opportunities stack up and enhance regional job creation. This multiplier effect highlights just how critical these zones are in keeping both local and national economies thriving.
Only 20 percent of merchandise within FTZs is exported. This distribution emphasizes the domestic and international markets FTZs serve. The ability to defer tariffs until products are sold allows businesses to maintain cash flow and manage expenses more effectively.
“With the higher tariffs, it gives us the ability to defer the payment of those tariffs until such time we take it out of the FTZ for commerce.” – Dan Ratley
Unfortunately, recent changes in executive orders have sent FTCs to the backburner, raising doubt among businesses that use FTZs as key tools for their global competitiveness. Each of these companies are now subject to increased duty rates when importing components for finished goods into these zones.
“One of the hallmarks of the foreign trade zone program is this benefit, but these restrictions that have been put in place in these executive orders have stopped all of that.” – Melissa Irmen
As a result, more manufacturers are taking a fresh look at their FTZ strategies. They’re doing everything they legally can to avoid or offset the effects of increasing tariffs.
The Future of Foreign Trade Zones
As companies attempt to maneuver through a perplexing tariff landscape, the need for Foreign Trade Zones has never been greater. More and more organizations are finding out just how beneficial these zones are at keeping them competitive and boosting their cash flow.
“They’ve always been a bit of a niche instrument in the toolbox for U.S. importers. Now, because we are in this incredibly impactful tariff environment, more and more organizations are saying, ‘yes the business case to stand up a foreign trade zone makes sense for us.’” – Jackson Wood
Christine Mackay notes that as grantees of FTZs, local authorities must be willing to support incoming companies to leverage their benefits effectively. Without this support, many would-be applicants find it too daunting to navigate the complexities of setting up an FTZ.
“As the grantee, we have to be willing to accept them into our foreign trade zone. Without our letter of support, they wouldn’t be able to submit their application.” – Christine Mackay
Given the changing international trade environment, there’s a clear need for businesses to be more agile. More companies than ever are considering FTZs as a strategic solution for mitigating tariff impacts.
“Everybody’s looking into it and trying to minimize (the effects of tariffs), improve their cash flow and avoid it altogether.” – Dan Ratley