Foreign Trade Zones (FTZs): The Unsung Weapon Against 2025’s Tariff Tsunami

By Simran Sethi, Product Manager, Global Trade Intelligence, Descartes

As trade tensions push import duties to record heights, U.S. businesses are scrambling for ways to protect their profit margins. In 2025, sweeping levies—including a baseline 10% tariff on most goods alongside lingering Section 301 and Section 232 duties—have driven some product lines from China up by as much as 145%. Add a stubborn 25% duty on foreign‑built autos, and suddenly even routine procurement decisions carry seven‑figure risk.

Enter Foreign Trade Zones (FTZs), once relegated to the back pages of compliance manuals. These specially designated areas have become a strategic bulwark against ever‑escalating tariffs.

• Tariffs hit record highs in 2025, with rates up to 145% on some imports.
• FTZs help to defer duties, allowing you to pay less later or export without paying at all.
• Inverted‑tariff treatment slashes costs. Process in FTZs to choose the lower duty rate on parts or products.
• FTZs can be used as a buffer against sudden policy shifts or rising tariffs.
• With FTZs, goods can be released on your schedule to control cash flow and duty costs.
• FTZs can help cut costs across industries—from autos to retail to pharma.

An FTZ is a secure, designated area near a U.S. port of entry where businesses may store, assemble, or process goods prior to their domestic release. Although these zones lie within U.S. borders, they are treated as outside the jurisdiction of U.S. Customs and Border Protection (CBP). This legal nuance allows companies to defer customs duties until the goods officially enter the market, thereby enhancing cash flow and reducing operational costs.

Companies within FTZs benefit from deferred duty payments, streamlined import/export procedures, and significant savings on inventory management. Goods can remain in an FTZ indefinitely, undergo various processes, and then either be exported without incurring U.S. duties or imported at reduced cost—a system that has proven advantageous for industries ranging from automotive and electronics to pharmaceuticals and retail.

In today’s turbulent global trade environment, fluctuating tariff rates can significantly impact a company’s bottom line. FTZs offer a strategic framework that not only minimizes these risks but also provides businesses with a robust mechanism to adapt to changing trade policies.

FTZs allow companies to defer duty payments until the precise moment their goods enter the domestic market. This deferral is crucial in a volatile trade landscape, as it enables businesses to time tariff payments based on current rates rather than locking in costs at the time of importation. In many cases, this means that companies can capitalize on lower tariff rates available later, effectively reducing their overall import expenses.

Another critical benefit is the ability to utilize “inverted tariffs.” Typically, finished goods are subject to higher duty rates compared to raw materials or components. FTZs enable manufacturers to pay duties on these lower-valued inputs instead of the final product, which can result in substantial cost savings. This approach not only lowers tariff exposure but also enhances the competitiveness of domestically produced goods in the global market.

Moreover, for companies involved in international trade, FTZs serve as an invaluable buffer against sudden policy shifts and trade disputes. Goods stored in these zones can be redirected for export without incurring U.S. duties, further insulating businesses from the adverse effects of tariff hikes. This flexibility in inventory management allows companies to hold safety stocks duty-free and strategically release products into the market at the most opportune moment.

The ability to lock in favorable tariff rates by choosing when and how to enter goods into the domestic market also offers companies a significant competitive edge. By strategically managing their FTZ inventories, businesses can mitigate risks associated with tariff volatility and maintain more predictable cost structures, even in uncertain economic times.

Overall, leveraging FTZs to mitigate tariff exposure is not merely a cost-saving measure—it is a proactive strategy that enhances financial flexibility and strengthens supply chain resilience. In an era marked by unpredictable trade policies, FTZs provide companies with the tools to adapt swiftly, optimize their operations, and secure long-term profitability.

FTZs accommodate an array of products, from raw materials to finished goods, though certain items—such as firearms, alcohol, tobacco, and specific agricultural products—remain restricted. Common activities within these zones include:

• • Manufacturing: Utilizing imported components to produce finished products, often at lower tariff rates.
  • Warehousing and Storage: Holding goods duty-free until market demand arises.
  • Assembly and Processing: Combining raw materials and semi-finished goods to create final products with minimized customs costs.
  • Testing, Repairing, and Salvaging: Ensuring quality control and managing expenses before distribution.

Establishing FTZ operations requires a systematic application and approval process. Key steps include:

1.  Application Submission: Businesses must provide a detailed proposal to the Foreign-Trade Zones Board, outlining intended operations and anticipated economic impact.
2. Regulatory Review: Authorities assess compliance with trade policies—a process that generally spans 9 to 12 months.
3. Security Implementation: Once approved, companies must install robust security measures, including controlled access and inventory tracking.
4. Customs Inspection: CBP conducts thorough inspections to verify adherence to regulations before final operational approval.
5. Ongoing Compliance: Businesses are required to maintain detailed records and consistently meet CBP guidelines to retain their FTZ status.

FTZs offer numerous benefits for companies striving to optimize supply chains and reduce costs:

• • Supply Chain Efficiency: Duty-free storage and deferred customs payments streamline logistics and reduce financial burdens.
  • Expedited Logistics: FTZ direct delivery approvals enable businesses to bypass typical port delays, ensuring quicker shipments.
  • Tariff Inversion: Manufacturers can choose to pay duties on either raw materials or finished products—whichever is more favorable—thus enhancing profitability.
  • Duty and Tax Savings: FTZs allow for duty deferral on imports, a reduction in Merchandise Processing Fees (MPFs) through consolidated filings, and exemptions on scrap or unusable materials

Several sectors have embraced FTZs to fortify their supply chains and boost competitiveness:

• • Automotive & Electric Vehicles: Lower costs on imported components like lithium and cobalt.
  • Electronics & Technology: Duty deferrals on high-value items, including semiconductors and circuit boards.
  • Pharmaceuticals & Chemicals: Enhanced regulatory compliance alongside duty savings on raw materials.
  • Retail & Ecommerce: Increased warehousing flexibility and more efficient distribution networks.

Key considerations for integrating FTZs into business strategies include evaluating trade volumes, understanding product-specific advantages, and ensuring rigorous regulatory compliance.

For companies aiming to capitalize on FTZ benefits, a strategic approach is crucial:

• • Assess Eligibility: Evaluate trade activities to determine qualification for FTZ participation.
  • Select the Appropriate Model: Choose between General-Purpose Zones for warehousing/distribution and Subzones for specialized manufacturing.
  • Secure Necessary Approvals: Collaborate with FTZ authorities and CBP to gain operational clearance.
  • Maintain Compliance: Develop and adhere to robust security and reporting protocols.
  • Optimize Operations: Leverage duty deferrals and cost reductions to enhance overall efficiency and market agility.

Foreign Trade Zones remain an invaluable asset for businesses navigating the complexities of global trade. By providing a framework to manage customs procedures, streamline logistics, and mitigate tariff risks, FTZs empower companies to achieve operational excellence and sustain competitive advantage. As international commerce continues to evolve, a well-integrated FTZ strategy offers a pathway to long-term growth and resilience.

Managing a Foreign Trade Zone can be complex, but it becomes a powerful cost-saving and compliance tool with the right technology. Descartes, an industry leader in global trade intelligence, helps businesses streamline FTZ operations, reduce tariff exposure, and enhance supply chain agility through automation and real-time visibility.

How Descartes Can Help
Descartes FTZ Software, designed with importers, manufacturers, and 3PLs in mind, automates key FTZ processes, including electronic filings, Harmonized Tariff Schedule (HTS) classification, and denied party screening. It enables centralized inventory tracking, accurate tariff calculations, and multi-client servicing from a single platform. With integrated compliance tools and real-time data access, businesses can confidently manage FTZs, optimize duty deferral and inversion, and maintain full regulatory compliance, unlocking the full strategic and financial benefits of FTZ participation.