Companies Turn to Foreign-Trade Zones to Shelter From U.S. Tariffs

Summary

WSJ What’s News Summary
Episode: Companies Turn to Foreign-Trade Zones to Shelter From U.S. Tariffs
Release Date: May 13, 2025

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1. U.S. Inflation and Tariff Impacts

Overview:
The episode opens with a discussion on the latest U.S. inflation data and its relationship with ongoing tariff policies under the Trump administration.

Key Points:

• Inflation Data: In April, the Consumer Price Index (CPI) saw a seasonally adjusted increase of 0.2%, aligning with economists' forecasts. Year-over-year, inflation cooled to a 2.3% rise, which is below expectations and down from March's rate.

• Tariff Effects: Despite the slight uptick in monthly inflation, economists like WSJ economics reporter Chao Dang caution that volatility from tariffs hasn't fully manifested in the data yet.

Notable Quotes:

• Alex Osola (00:33): "US inflation ticked up in April, showing an early hint of the impact of tariffs."

• Chao Dang (02:12): "This report by no means reflects how businesses are going to react to the tariffs, and that's something that we'll probably see later this summer."

• Chao Dang (03:02): "A good way to think about it is this report is a bit like observing sunny weather ahead of a widely anticipated storm where the rainfall remains highly uncertain."

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2. Market Performance Overview

Overview:
The discussion transitions to the U.S. stock market's performance in light of the new inflation data.

Key Points:

• S&P 500 & Nasdaq: Both indices closed higher, with the S&P 500 up by 0.7% and the Nasdaq by 1.6%, marking a positive turn after two months of decline.

• Dow Jones: The Dow slipped by 0.6%, influenced partly by a significant sell-off in UnitedHealth shares.

Notable Quotes:

• Alex Osola (03:35): "US Markets closed mostly higher today after the good news on inflation."

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3. U.S. Policy Shift: Lifting Sanctions on Syria

Overview:
President Trump's visit to the Middle East includes significant policy announcements, notably lifting sanctions on Syria.

Key Points:

• Sanctions Lifted: Trump announced the cessation of sanctions against Syria during his policy address in Saudi Arabia, aiming to provide financial support following the ousting of Syria's dictator.

• Investment Deals: Concurrently, Trump signed $300 billion in investment deals with Saudi Arabia, with aspirations to double this figure within four years.

• Iran Ultimatum: Trump also issued a stern warning to Iran to prevent it from acquiring nuclear weapons.

Notable Quotes:

• President Trump (04:10): "I will be ordering the cessation of sanctions against Syria in order to give them a chance at greatness."

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4. Companies Embrace Foreign-Trade Zones (FTZs)

Overview:
The core topic centers on how U.S. companies are leveraging Foreign-Trade Zones to mitigate the financial impacts of tariffs.

Key Points:

• FTZ Benefits: Companies use FTZs to defer tariff payments until their products are sold. This strategy aids in managing cash flow and provides flexibility amidst tariff volatility.

• Arizona's Role: Arizona stands out as the leading FTZ hub in the U.S., hosting facilities that employ more workers than any other state. The state's incentives have attracted numerous businesses, including smaller enterprises that traditionally haven't utilized FTZs.

• Policy Nuances: Recent executive orders by the Trump administration have introduced complexities, such as locking in tariff rates at the time of goods' entry into FTZs, preventing companies from benefiting from potential future tariff reductions.

Notable Quotes:

• Owen Tucker Smith (05:59): "Under Trump's latest executive order, they're basically locking in the tariff rate that was in place when the goods entered."

• Owen Tucker Smith (06:54): "A lot of it is a cash flow thing. ... It helps from a cash flow perspective."

• Owen Tucker Smith (07:51): "Arizona has special incentive for FTZ development, and that's brought many, many jobs to the program in this state specifically over the last 10 or 20 years."

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5. Economic Anxiety Among Young Adults

Overview:
The episode highlights the growing economic anxiety among young adults, influenced by a slowing economy and rising costs.

Key Points:

• Behavioral Changes: Young adults are cutting back on discretionary spending, delaying travel, and opting for more affordable daily choices like bringing lunch from home.

• Future Uncertainty: Many are rethinking significant life milestones such as home purchases and starting families due to financial uncertainties and perceived lack of job security.

• Emotional Impact: The financial instability is closely tied to emotional well-being, affecting young adults' sense of security and future aspirations.

Notable Quotes:

• Isaac Taylor (08:49): "It's a shared sense of pessimism around my friend group and a feeling that the financial stability we hope to have in our late twenties just isn't where we would have wanted it to be."

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6. Leadership Changes at UnitedHealth Group

Overview:
UnitedHealth Group is undergoing significant leadership changes amidst financial challenges.

Key Points:

• CEO Resignation: Andrew Witte steps down from his role as CEO for personal reasons following a period of underperformance.

• Interim Leadership: Stephen Hemsley, a former CEO, has returned to lead the company immediately.

• Financial Outlook: UnitedHealth has suspended its reduced earnings outlook for 2025 and anticipates a return to growth by 2026.

Notable Quotes:

• Alex Osola (09:34): "UnitedHealth Group said its chief executive, Andrew Witte, has stepped down for personal reasons."

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7. ESPN Launches Streaming Service

Overview:
ESPN is entering the crowded streaming market with its new service aimed at sports enthusiasts.

Key Points:

• Service Details: The streaming platform, named simply "ESPN," will offer all content available on ESPN's TV channels for $29.99 per month.

• Competitive Edge: Leveraging exclusive rights to NFL, NBA, and college games, ESPN aims to attract cord-cutters and those without traditional cable subscriptions.

• Market Positioning: As part of Disney, ESPN's entry adds to the array of streaming options vying for consumer attention and budgets.

Notable Quotes:

• Alex Osola: "The new service will give sports fans all the content shown on ESPN's television channels."

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8. United Airlines Enhances Premium Travel Experience

Overview:
United Airlines is investing in enhancing its premium travel options to appeal to affluent travelers despite current economic challenges.

Key Points:

• Polaris Studio Suites: Planned for next year, these suites will offer more space and additional perks such as soft pajamas, caviar service, and noise-canceling headphones.

• Pricing: While specific prices for the new suites haven't been disclosed, current Polaris business class seats are priced around $5,600 for a San Francisco to London flight, compared to premium economy at $3,200 and economy at $1,500.

• Market Strategy: This move underscores United's commitment to maintaining its super-premium segment amidst economic turbulence, targeting travelers willing to pay a premium for enhanced comfort.

Notable Quotes:

• Alex Osola: "How would soft pajamas, caviar service and noise canceling headphones improve your next flight experience."

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Conclusion

This episode of WSJ What’s News provides a comprehensive overview of current economic indicators, corporate strategies amidst tariff-induced uncertainties, significant policy shifts, and changes within major corporations. It underscores the intricate interplay between government policies, market reactions, and individual consumer behaviors in shaping the contemporary business landscape.

Transcript

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[Alex Osola]

US inflation ticked up in April, showing an early hint of the impact of tariffs.

[Chao Dang]

A good way to think about it is this report is a bit like observing sunny weather ahead of a widely anticipated storm, where the rainfall remains highly uncertain.

[Alex Osola]

Plus, companies are rushing to access foreign trade zones as refuge from tariff volatility. And UnitedHealth places a new bet on its old CEO who made it a giant after its current chief executive steps down. It's Tuesday, May 13th. I'm Alex Osila for the Wall Street Journal. This is the PM edition of what's News, the top headlines and business stories that move the world today. Monthly inflation in the US Picked up slightly in April. The Labor Department said today that the Consumer Price Index rose A seasonally adjusted 0.2% last month, matching economists forecasts year over year. Inflation cooled to a 2.3% increase in April, below what economists had expected and below March's annual rate. For more, I'm joined by WSJ economics reporter Chao Dang. Ciao. April was a particularly back and forth month for Trump's tariff policies. How much do these new inflation numbers reflect?

[Chao Dang]

That overall, economists couldn't take a lot of comfort in this report because all this volatility still needs time to be reflected in the data. So in that sense, this report by no means reflects how businesses are going to react to the tariffs, and that's something that we'll probably see later this summer.

[Alex Osola]

As we've reported in the past, many businesses have tried to hold off so far on passing tariff costs along to customers. Does that mean we haven't felt the full impact yet of the tariffs?

[Chao Dang]

There were hints of tariff pass through in this report in a few categories exposed to tariffs like furniture, car parts and audio equipment. We did see prices up over the months. At the same time, prices fell for airline fares, which could be a sign that people are holding off on vacations. Prices also were down for used cars, even though there was a rush of people buying vehicles to try to get ahead of the inflation. But again, economists aren't reading much into it because they're expecting more of that pass through effect in the coming months.

[Alex Osola]

So what does all this mean for the Fed?

[Chao Dang]

This report gives the Fed little reason to change their stance, which has been one of wait and see essentially again, because officials are bracing for cost increases and distortions as tariffs take their full effect. A good way to think about it is this report is a bit like observing sunny weather ahead of a widely anticipated storm where the rainfall remains highly uncertain.

[Alex Osola]

That was WSJ economics reporter Qiao Dang. Thank you, Chao.

[Chao Dang]

Thanks.

[Alex Osola]

US Markets closed mostly higher today after the good news on inflation. The S&P 500 added 0.7% and is now slightly positive on the year after spending the past two months in the red. The Nasdaq jumped 1.6% and the Dow slipped 0.6%, in part due to a big sell off in UnitedHealth that saw its CEO stepping down. More on that later. President Trump has decided to lift sanctions on Syria. He announced the change during a policy address in Saudi Arabia, his first stop on a four day trip in the Middle East.

[Advertiser]

I will be ordering the cessation of sanctions against Syria in order to give them a chance at greatness.

[Alex Osola]

The move gives the country a financial lifeline after a lightning campaign overthrew its decades long dictator late last year. The announcement sets the table for Trump to speak with new Syrian President Ahmed Al Sharra tomorrow in the Saudi capital. The White House has billed it as a quick meet and greetings. Trump's remarks capped a busy first day of his visit to the Middle east. He signed $300 billion in investment deals with Saudi Arabia with an eye towards doubling that total within four years. Trump also issued an ultimatum to Iran as he aims to prevent the country from obtaining a nuclear weapon. Coming up, why a free trade zone in Arizona is teeming with new business. More after the break.

[Advertiser]

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[Alex Osola]

Given the Trump administration's ongoing tariffs, companies are racing to access foreign trade zones, refuges often referred to as ftz. They can use these zones to defer tariff payments until products are sold. According to Commerce Department data, Arizona is the FTZ capital of America, its facilities employing more workers than those of any other state. Owen Tucker Smith is a reporter at the Wall Street Journal. So Owen, a company imports some goods, they go Right from the port to these warehouses. And then what happens when a sale has been agreed? What tariff do they actually apply to their goods?

[Advertiser]

So they go from the ports to these warehouses. And these warehouses, according to U.S. customs, are technically not even part of America. They're considered sort of foreign soil for customs purposes in that they haven't gone through the customs process. So there aren't any tariffs assessed. However, under Trump's latest executive order, they're basically locking in the tariff rate that was in place when the goods entered. This was a big source of confusion for a lot of companies who were exploring FTZs for the first time. I came across plenty of businesses who were under the impression that they could essentially take the goods, put them in the warehouse, wait for the tariff rate to drop, and then remove at the lower tariff rate. But that's not actually how it works. As of now, the policy is that if your goods entered the forward trade zone when the tariff rate was, for example, 145%, even if the tariff rate drops when you take it out, you still have to pay that really high tariff rate from before.

[Alex Osola]

What's making these warehouses so appealing for companies right now?

[Advertiser]

A lot of it is a cash flow thing. So usually when you import goods, you have to pay the tariffs immediately. But if you import goods into a foreign trade zone, you get to essentially wait and defer until you actually have the security and the peace of mind to know that you're going to be able to sell your goods. And for smaller businesses for whom some of these tariff payments are really, really high, it helps from a cash flow perspective. Traditionally, the companies that have made this program such a huge thing over the last century have been major businesses that have used them for manufacturing. So think businesses like Apple or Intel or tsmc. But during this year's FTZ craze, the businesses that we're seeing run there are actually much smaller businesses. Their thinking is, yes, we know that we're going to have to pay these tariffs eventually, but we get to pay the tariffs on our own terms.

[Alex Osola]

And what does this mean for Arizona, where, you know, many people are employed?

[Advertiser]

Arizona has special incentive for FTZ development, and that's brought many, many jobs to the program in this state specifically over the last 10 or 20 years. And now that everyone's talking about it, there's some states that might be looking to Arizona as sort of an example. And we're seeing a lot of talk from the Trump administration about wanting to create more domestic American manufacturing jobs. And this program essentially allows companies to create those jobs, but maybe in a scenario where your entire supply chain can't.

[Alex Osola]

BE in the U.S. that was reporter Owen Tucker Smith. Thank you so much Owen.

[Advertiser]

Thank you.

[Alex Osola]

For many young adults, the prospect of a slowing economy and higher prices is new and unsettling. WSJ platform editor Isaac Taylor told our your Money Briefing podcast that economic anxiety is prompting some young adults, including his friends, to delay or even rethink their plans for the future.

[Isaac Taylor]

The conversations are constantly about cutting back on eating out. Friends who used to go eat out every day for lunch are now brown bagging it or just going to McDonald's for a cheaper option, delaying travel plans and generally just being more frugal. Some have seen their job security become less certain and a little bit more shaky, while others are grappling with the increasing cost of major life steps that they're hoping to take, like buying a house or starting a family. It's a shared sense of pessimism around my friend group and a feeling that the financial stability we hope to have in our late twenties just isn't where we would have wanted it to be. And it's tough because our emotions are so tied to our sense of security and our aspirations.

[Alex Osola]

You can hear more from Isaac about how to deal with this economic anxiety in today's episode of youf Money Briefing. In other news, UnitedHealth Group said its chief executive, Andrew Witte, has stepped down for personal reasons. Witte has presided over a punishing period for the company, including a steep drop in its shares after its quarterly earnings last month fell significantly short of investors expectations. Chairman Stephen Hemsley, who was UnitedHealth CEO for more than a decade ending in 2017, will return to running the healthcare giant effective immediately. UnitedHealth also said it was suspending the reduced 2025 earnings outlook it issued on April 17. It added that it expects to return to growth in 2026. And ESPN said today that its highly anticipated streaming service, set to launch in the fall, will cost 29.99amonth and it will be named simply ESPN. The new service will give sports fans all the content shown on ESPN's television channels. The company has the advantage of exclusive NFL, NBA and college games, among other valuable sports rights. ESPN, which is owned by Disney, is counting on its new streaming service to attract cord cutters and those who have never paid for cable. But the new SPN offering joins a crowded field of streaming services, all competing for customers attention and budgets. And finally, how would soft pajamas, caviar service and noise canceling headphones improve your next flight experience. United Airlines plans to fly planes next year that feature Polaris studio suites with more space and other perks, the latest sign that super premium travel is surviving the current economic turbulence. United hasn't yet detailed the price tag, but this week the airline was offering tickets for its current Polaris business class at about $5,600 for a June flight from San Francisco to London. That's compared with $3,200 for premium economy and. And $1,500 for economy. And that's what's news for this Tuesday afternoon. Today's show is produced by Anthony Banci and Pierre Bienname with supervising producer Michael Cosmides. I'm Alex Osola for the Wall Street Journal. We'll be back with a new show tomorrow morning. Thanks for listening.