With President-elect Donald Trump pledging to increase taxes on goods from China, Canada and Mexico with the intention of bringing manufacturing back to the United States, some companies might benefit from a local opportunity that could help them delay — or even avoid — paying the higher fees.
It could also make the Development Finance Authority of Summit County’s plan to take over the administration of the Foreign Trade Zone particularly well timed. The zone is now administered by Summit County; the DFA is not a county agency.
Members of the DFA board, who voted last week to begin the process of taking over Foreign Trade Zone 181, said the timely decision to embrace new opportunities could work out well for businesses and the DFA alike.
“It makes a lot of sense for us,” said Rachel Bridenstine, the DFA’s current vice president and incoming president. “The county is no longer able to run it, and it makes more sense under our umbrella.”
What is a Foreign Trade Zone?
The Summit County-based Foreign Trade Zone is a secure area that is under the supervision of the U.S. Customs and Border Protection. Even though it’s physically located in Ohio, for the sake of tax purposes, it’s considered to be outside the United States.
That means that goods coming into the Foreign Trade Zone aren’t subject to tariffs until they leave it. If manufacturers export what they make with the imported materials, they would never have to pay tariffs, since the goods are considered to have never been in the country.
If manufacturers distribute what they make with the imported goods inside the United States, they pay the tariff when the goods leave the trade zone, or are essentially “imported.”
The primary zones are based at customs points of entry — in this case, the Akron-Canton Airport.
The zone has subzones as well, including areas within the 10-county area of Ashtabula, Trumbull, Mahoning, Columbiana, Portage, Summit, Stark, Medina, Wayne and Richland counties, that are specifically permitted to be used in designated industrial parks, often for manufacturing.
There’s no company actively using the Foreign Trade Zone in Green now, said Wayne Wiethe, the city’s director of planning. But he said a water-pump manufacturer that had used the zone previously brought parts from Southeast Asia to put them together locally, creating jobs in Summit County.
“The president-elect talks about tariffs, and it could be beneficial to a company to be in a Foreign Trade Zone,” Wiethe said. “It’s a viable option. It could be an even more viable option in the future.”
Increase in tariffs leads to more interest in Foreign Trade Zones
During Trump’s previous presidency, there was an increase in the number of Foreign Trade Zones in the United States, said Kristine Wells Rosa, a spokesperson for the National Association of Foreign-Trade Zones. The 2019 peak reflected “a clear response to additional tariffs implemented during the Trump administration,” she said in an email. There was also an increase in the value of merchandise going in and out of such zones.
The numbers fell in the 2020 pandemic but have picked up in recent years, she said.
If Trump “slaps on the tariffs,” businesses operating in these zones would be at an advantage because they can defer those payments, said Sucharita Ghosh, a professor and chair of the Department of Economics at the University of Akron’s College of Business.
“For a business, it’s a cost saving,” she said. “When you reduce your cost, it makes you more competitive.”
Ghosh said such zones give companies more leeway to save money in other ways, too. And her research shows that there are spillover effects associated with the zones — within five miles of Foreign Trade Zones, there’s a 1.8% long-term increase in the growth rate of non-manufacturing establishments.
Ghosh said she was aware of four businesses operating in the Summit-based Foreign Trade Zone currently.
“The fact that you can import goods into a geographical area without duties makes it more attractive,” she said.
The reprieve for businesses that hold inventory can be substantial if they’re in a Foreign Trade Zone, said Lori Sallaz, the DFA’s manager of bond finance programs. And while there was a dip in usage following the approval of the North American Free Trade Agreement, also known as NAFTA, Sallaz said she expects that, with new tariffs, more businesses will give the option another look.
Most zones managed by economic development agencies
Wiethe, with the city of Green, said he thinks businesses that could be impacted by new tariffs will be looking for ways to manage some of those costs. He said a move from the county to the DFA could be a beneficial one — the Foreign Trade Zone board likes regional partners, Wiethe said.
The zones are economic development tools like any others, and Wiethe said the DFA may be better positioned to let businesses know about the opportunity.
“The DFA just has been around a little bit, being able to assist companies in a different way,” he said.
No one from the county returned calls and emails seeking comment about the proposed switch. But Wells Rosa, with the National Association of Foreign-Trade Zones, said it’s most common for economic development entities to be involved with the zones.
They’re a good home for the zone administration because “they’re already in contact with all or at least most of the employers in the region, are responsible for bringing new business to the region and [are] providing the tools and resources to keep employers in the area,” she said. “City and county governments themselves don’t tend to have this kind of ‘sales force’ that is in frequent contact with local employers.”
It could take several months for the administration to change, said Bridenstine. But once it does, the DFA has the opportunity to bring more businesses in, she said. The DFA could also get marginal revenue for taking it over.
“It’s a value-add for manufacturing,” she said. “There’s an opportunity for us to grow it if we’re strategic and market it correctly.”
