As of April 2025, President Trump has enacted sweeping tariff increases. These measures include a new 10% baseline tariff on imports from most countries, a staggering 145% tariff on most Chinese goods, and additional steep country-specific tariff increases that are scheduled to take effect in July (after a 90-day delay).
In response, businesses across industries, both foreign and domestic, are urgently reassessing their supply chain strategies to mitigate these rising costs. For U.S. companies that depend on imports, one longstanding, but underused, tool for doing so is drawing renewed attention: Foreign Trade Zones and Subzones.
What Are Foreign Trade Zones and Subzones?
Foreign Trade Zones (FTZs) are geographic areas that are deemed to be outside the customs territory of the United States for tariff purposes. This means that imports entering the FTZ are not subject to tariffs unless and until they leave the zone and enter the rest of the United States. FTZs are located in or near a port of entry, such as an airport or seaport.
Federally approved “Subzones” can be established to extend the benefits of FTZs further away from a port of entry. Subzones are special-purpose sites that are most typically used by private businesses. They allow businesses not located within an FTZ to access all the same FTZ advantages.
What Are the Benefits?
FTZs and Subzones are designed to expedite and encourage trade. Businesses that rely on imports can reduce their overall tariff burden in multiple ways, including (1) avoiding U.S. tariffs on goods that are re‑exported or destroyed within the FTZ, (2) deferring tariffs on goods that are eventually resold into the U.S., or (3) the ability to transform goods located within the zone to qualify for a different import category subject to a lower tariff rate. In addition, streamlined customs procedures are available for goods entering the zone.
One caveat is required in light of a recent executive order. As of April 9, 2025, imports into an FTZ or Subzone must be admitted with “privileged foreign status,”[1] which effectively means that any U.S. tariffs on the item will be determined based on its classification when it entered the zone.[2] While it remains in effect, the executive order prevents the transformation of goods within an FTZ or Subzone from one import category to another for purposes of obtaining a lower tariff rate. Notwithstanding this, businesses still stand to benefit from tariff deferrals on goods sold domestically and the complete avoidance of U.S. tariffs on items re-exported from an FTZ or Subzone.
Who Can Use FTZs and Subzones?
Virtually any U.S. business involved in importing goods can apply to use either an FTZ or a Subzone. Both foreign and domestic goods can be stored, manufactured, processed, or manipulated in other ways while located within the zone. Some of the largest beneficiaries historically include companies that manufacture, distribute, or warehouse products such as electrical machinery, pharmaceuticals, vehicles or vehicle parts, electronics, and petroleum products. Other major users of FTZs or Subzones also include aircraft or spacecraft manufacturers, iron or steel producers, and even alcoholic beverage companies, among many others.[3]
How Can Businesses Apply?
To benefit from an FTZ or Subzone, a business is generally first required to obtain the support of an FTZ “grantee.” Grantees can be public entities, such as political subdivision or a local port authority or certain private entities specially organized for establishing an FTZ. Different FTZ grantees will apply their own requirements and priorities when considering requests from private businesses.
After obtaining the grantee’s support, the business and the grantee must work closely together to prepare an application, which the grantee will submit to the U.S. Foreign-Trade Zones Board. If the Board approves the application, the business must then submit a request to U.S. Customs and Border Protection to “activate” the business’s FTZ or Subzone benefits.
Depending on the type of application and the complexity of the business activities at issue, the time required to complete this process can vary. It may require a year or more in many cases, although it can often be accomplished more quickly, especially in the case of Subzones.
ZHF Insights
Before pursuing FTZ or Subzone status, companies should conduct a thorough cost-benefit analysis to determine whether the trade-related benefits justify the application cost and ongoing compliance costs. Recent tariff increases could make this strategy attractive for many businesses that may not have pursued it in the past. In addition, companies that already use FTZs or Subzones should review their operations to look for new ways to optimize the associated benefits in light of the new tariff landscape.
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If you have questions about foreign trade zones or supply chain tax strategies, please contact Tommy Zaino or one of our other ZHF professionals for further information.
[1] See 19 C.F.R. § 146.41.
[2] See Exec. Order No. 14257, § 3(g) (Apr. 2, 2025).
[3] See U.S. Foreign-Trade Zones Board, 2023 Annual Report, available at https://www.trade.gov/annual-report.