Exploring the Tariff Sanctuary of the Trade War: ‘Foreign’ Areas and Bonded Warehouses

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To offset the rising costs of tariffs and trade war uncertainty, companies are using U.S. Customs-sanctioned foreign trade zones (FTZs) and bonded warehouses to delay or reduce product taxes. FTZs have a long history dating back to a previous period of trade conflict, created during the Great Depression by Congress to encourage international trade and boost exports at a time when the Smoot-Hawley tariffs were as high as 53%.

Companies importing raw materials, semi-finished goods, or components from foreign countries to an FTZ or bonded warehouse essentially operate in a tariff bubble, meaning when they enter the U.S., they are stored duty-free. Once inside an FTZ, a product can be assembled or modified, and duties are only collected after a product leaves the zone and enters U.S. commerce. Products can be stored in an FTZ indefinitely, while bonded warehouses have a limit of up to five years. There are FTZs in all 50 states, totaling approximately 2,240 across the nation, according to U.S. Customs.

For companies navigating the complexities of trade tensions, preserving cash is a priority. By delaying duty payments, "FTZs and bonded warehouses essentially free up a company's cash flow," said Jason Strickland, director of sales at a logistics firm. "There is also the added benefit that if a product is manufactured in an FTZ and is re-exported abroad, no duty payments are incurred at all."

Before the 2025 global trade conflict, companies that manufactured products in an FTZ enjoyed what is known as an "inverted tariff" benefit. This meant they could choose to pay a lower duty rate on the finished product compared to the higher rates on individual components.

Companies that have utilized FTZs include automakers, as well as major technology firms. Additionally, FTZs were used during vaccine development to enable production without incurring additional duties on components.

However, recent executive orders have impacted this benefit, posing challenges for companies like Regent Tek Industries, which manufactures liquid road markings. The removal of the inverted tariff option has led to increased costs. "Our product is basically like baking a cake," said Helen Torkos, president of Regent Tek. "If you're missing one ingredient, you can't make that cake. We cannot source all of our components here. We are paying around 7% more now because the inverted tariff option is no longer available to us."

Without the advantage of the FTZ inverted tariff, many companies quickly shifted to bonded warehouses. Strickland noted a significant increase in demand for these solutions. Companies can import products under a higher tariff rate and store them without paying duties. Unlike FTZs, if tariffs drop while a product is in a bonded warehouse, the company can release the product and pay the lower rate.

"At the end of the day, the goal is to protect your cash flow," Strickland said. "You don't want to bring in all your goods and deplete your cash flow against tariffs that may change in the near future. If you can defer until the market is ready to consume those goods, that's a win-win."