How to delay, or even avoid, tariffs on a small business
How to delay, or even avoid, tariffs on a small business
(This column originally appeared in the Inquirer)
The impact of President Donald Trump’s proposed tariffs is fluid, but even so, businesses can take steps now to limit the added expense.
Trump has proposed a 25% tariff on goods incoming from Canada and Mexico, both levies that are temporarily on hold while each country fulfills their promises to provide more troops at their borders and take steps to eliminate the flow of illegal drugs into the U.S.
He has also imposed a 10% tariff on all goods from China, which are currently in place. These are in addition to the tariffs levied by the Biden administration in 2024 on many Chinese goods, including clothing, solar panels, electric vehicles, syringes, and steel, as well as batteries, electric vehicles and solar cells. Effective March 12, tariffs on all imported steel and aluminum will increase from 10% to 25%.
For companies that import goods from other countries, a few strategies for avoiding or minimizing the impact of tariffs include buying American, buying as much as possible in advance, diversifying suppliers, sourcing products from lower-tariffed countries, and manufacturing product outside the United States.
If you bring in imported materials for your business, here’s another idea: consider a Foreign Trade Zone (FTZ) facility or a bonded warehouse.
What is a Foreign Trade Zone facility?
While you can’t avoid most tariffs, you can potentially defer when you pay them using a foreign trade zone, said Marc Eisman, CEO of Philadelphia-based freight management company Jade International.
A foreign trade zone facility — usually a warehouse — sits in a designated, certified area where your company can store imported materials and avoid paying tariffs until those materials are actually used.
“In this scenario, if you only withdraw part of your inventory, you only pay tariffs on that portion,” he said. “That provides some flexibility and cash-flow advantages.”
By using an FTZ, you can import and then store your goods duty-free for an indefinite period and even provide additional work while in the zone, which could lead to even lower tariffs depending on how much value you’re adding to the raw material.
These value-added services can include assembly, packaging, or design, said Josh Fishbein, chief commercial officer at the nonprofit World Trade Center of Greater Philadelphia, which provides trade counseling to businesses looking to buy and sell overseas.
“If over 51% of the final product is U.S.-made, you might not pay any tariff at all,” he said.
Companies can also use these facilities to bring in and reexport the goods to another foreign destination and potentially avoid paying any duties, Fishbein added.
“This is particularly effective if you’re consolidating various components from different countries before shipping the finished product abroad,” he said.
According to the Port of Philadelphia, an FTZ provides many benefits.
Deferring custom payments helps with cash flow, reducing or eliminating duties when products are defective or damaged. So does avoiding all tariffs on goods received and then reexported.
A facility in an FTZ can provide long-term warehousing and storage, additional quality control, enhanced security, and potentially lower storage costs. Pennsylvania’s Department of Commerce provides information on FTZs and available FTZ facilities in the area and around the country.
“President Trump has said that tariffs are negotiable,” Eisman said. “So it’s possible that by deferring payment of these tariffs long enough, a company might be able to benefit in the future if final tariffs are reduced or even eliminated based on these negotiations. It’s definitely a strategy.”
What are bonded warehouses?
A “bonded warehouse” is licensed and regulated by U.S. Customs authorities for storing imported goods before they are either released for consumption or reexported.
Bonded warehouses are different from FTZ facilities as they offer limited storage periods and reduced capacity for manufacturing or assembly. But many of their benefits are similar to FTZ facilities, and the specifics of the company and the products stored will determine which solution is better.
A number of private real estate and logistics management firms offer bonded warehouses or provide assistance for establishing one, although doing this requires an application with the Port of Philadelphia and can be cost prohibitive.
A bonded warehouse can be good for companies that only want to compile and export orders to international customers, Fishbein said. But if there is value added like assembling and manufacturing, an FTZ structure may offer greater benefits.
“Both options should be evaluated,” he said. “Setting up your own FTZ or bonded warehouse is complex and expensive. For smaller companies, it’s advisable to work with established third-party logistics providers (like UPS, DHL, or local customs brokers) that already have the necessary certifications and compliance infrastructure in place.”
Work with an expert
Companies should use a multipronged approach that accounts for cash flow, tariff exposures, and supply chain needs, Fishbein said.
“It’s crucial to work with experienced logistics companies and customs brokers, vet your international partners carefully, and keep an eye on changing trade policies,” he said.
Eisman added that working with a trusted customer broker is also important.
“Much like an accountant who ensures your finances are in order, a good customs broker will help ensure your products are handled efficiently and that you comply with the rules,” he said. “A good broker can advise you on the best setup to avoid or reduce tariffs. This relationship is crucial, especially when navigating rapidly changing trade regulations.”
