P.M. Edition for May 13. Companies seek to access foreign-trade zones as they navigate rising U.S. tariffs. WSJ news associate Owen Tucker-Smith reports on how the country’s roughly 260 foreign-trade zones allow them to defer tariffs on imported goods and materials, for a while. And the latest consumer-price index showed prices rose 2.3% in the 12 months through April, slowing from a 2.4% rate a month earlier. Economics reporter Chao Deng considers U.S. tariffs’ effects on that price growth. Plus, President Trump announced an end to sanctions on Syria during the first of a four-day trip to the Middle East. The move would give Syria’s new rulers a financial lifeline. Alex Ossola hosts. Sign up for the WSJ's free What's News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices
Chapter 1: What are foreign trade zones and how do they work?
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U.S. inflation ticked up in April, showing an early hint of the impact of tariffs.
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.
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 Osola 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.
Chapter 2: How are U.S. tariffs affecting inflation?
Monthly inflation in the U.S. picked up slightly in April. The Labor Department said today that the Consumer Price Index rose a seasonally adjusted 0.2 percent last month, matching economists' forecasts. Year-over-year inflation cooled to a 2.3 percent increase in April, below what economists had expected and below March's annual rate. For more, I'm joined by WSJ economics reporter Chow Dang.
Chow, April was a particularly back and forth month for Trump's tariff policies. How much do these new inflation numbers reflect 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.
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?
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.
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Chapter 3: What did President Trump announce regarding Syria?
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. So what does all this mean for the Fed?
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.
That was WSJ economics reporter Chow Dang. Thank you, Chow. Thanks. U.S. markets closed mostly higher today after the good news on inflation. The S&P 500 added 0.7 percent and is now slightly positive on the year after spending the past two months in the red. The Nasdaq jumped 1.6 percent and the Dow slipped 0.6 percent 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.
I will be ordering the cessation of sanctions against Syria in order to give them a chance at greatness.
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Chapter 4: What challenges do companies face with tariffs?
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-Shara tomorrow in the Saudi capital. The White House has billed it as a quick meet-and-greet. 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.
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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?
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Chapter 5: Why are companies rushing to foreign trade zones?
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 percent, even if the tariff rate drops when you take it out, you still have to pay that really high tariff rate from before.
What's making these warehouses so appealing for companies right now?
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Chapter 6: How does the tariff rate work in foreign trade zones?
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.
And what does this mean for Arizona, where, you know, many people are employed?
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 jobs.
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 be in the U.S.
That was reporter Owen Tucker-Smith. Thank you so much, Owen.
Thank you.
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.
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