Foreign trade zones helped companies avoid tariffs. That's changed under Trump.

Companies have been able to mitigate some of the costs and uncertainty caused by the president’s tariffs by seeking shelter in foreign trade zones. They’re specially-designated areas, typically near ports and airports, that are legally considered to be outside of U.S. customs territory.

Historically, FTZs have allowed companies to import tariff-free and then use those imports to manufacture products with lower tariff rates, or even none at all. But last year, the Trump administration removed that benefit. In the time since, companies have had to decide whether setting up shop in an FTZ is still worth it.

About a year ago, Aaron Stinner was trying to find a new location for the bike frame manufacturing company he runs in California.

“We needed a bigger space,” Stinner said. “We were getting a lot of influx of potential clients for manufacturing here in the States.”

Stinner Frameworks was facing threats of tariffs that could have been more than 100% on the components it imports from China and Taiwan. So, Stinner planned to set up his new location in a foreign trade zone.

“That would allow us to manufacture the frames here in the States, bring components in from outside, assemble the bikes within the FTZ, and then when it leaves the FTZ, have that then be released into the North American market tariff-free,” Stinner said.

Then, the Trump administration changed the rules. Stinner wouldn’t be able to use the FTZ to reduce or eliminate his tariff bill. So he pulled the plug on setting up shop there.

“For those of us trying to make stuff here, having a slight advantage in being able to do that would be great, at least put us on an even playing field,” he said. “But when that’s not even happening, it’s like, what is the point here?”

Some foreign trade zones have seen interest die down. Drew Rodriguez, business development senior representative with the Port of Hueneme, which oversees one in Ventura County, California, said inquiries about the FTZ surged after the Trump administration’s big tariff announcement last year. But so far this year, the port’s fielded only a handful of inquiries.

“If people were interested, when that tariff craze and hysteria was taking over, they would have already reached out to us by now,” Rodriguez said. “Where now, they know this either works for me or it doesn’t work for me.”

There are plenty of instances where FTZs still make sense. Jessica Miserendino is the import manager with AFL, a company in Duncan, South Carolina that makes fiber optic cables. It imports a lot of optical fiber from Japan.

“We have a site in Duncan that is approved as a U.S. foreign trade zone,” she said. “And all of our manufacturing operations are within that foreign trade zone.”

Miserendino said the FTZ still offers advantages. Because when businesses import goods into a foreign trade zone, they don’t have to pay duties or tariffs immediately. “You don’t have to pay them until you actually manufacture the goods and ship them out of your zone.”

That gives the company more flexibility to deal with tariff bills, which Miserendino said can run to hundreds of thousands of dollars.

“Especially while you’re waiting to see what happens with these tariffs,” she said. “Maybe you want to bring in some material and hold it because you don’t know if they’re going to go up. You don’t know what’s going to change day by day at this point.”

Being able to delay tariff payments allows businesses to invest that money elsewhere.

“Looking at the companies that are operators within our trade zone, many of them are going through pretty significant expansions,” said Ryan Touhill, director of community and economic development with the City of Phoenix.

Touhill said those companies include semiconductor manufacturers, along with aerospace and defense companies.

“As businesses invest, that’s more jobs for folks who live in the Phoenix region,” he said. “Those businesses are generating revenue that is helping to support all of the public infrastructure and services we provide as a jurisdiction.”

Touhill added that the number of businesses using the city’s FTZ has steadily increased over the last several years. And so far this year, it’s still going up.