They may be fierce rivals when it comes to selling sneakers and signing star athletes, but the likes of Nike Inc.; Under Armour; Adidas America Inc. and Reebok International have become allies in the fight against President Trump’s proposed tariffs on footwear.
The sports giants were among the 170-plus leading footwear companies that on Monday lent their names to a letter addressed to Trump and other government officials, urging them to immediately drop plans to unleash 25 percent tariffs on footwear imported from China.
“The proposed additional tariff of 25 percent on footwear would be catastrophic for our consumers, our companies, and the American economy as a whole,” said the letter, adding that it would impact every type of shoe.
The stakes are particularly high for footwear companies, with China accounting for almost three-quarters of footwear imports and analysts have singled out Steve Madden, Skechers and Under Armour as being among those footwear companies particularly vulnerable to higher tariffs.
The call to action follows a roller-coaster start to May, with both the footwear and apparel industries thinking that they had avoided higher tariffs as trade talks between the U.S. and China appeared to be moving along, but that all changed just over two weeks ago when Trump took to Twitter to accuse China of reneging on its commitments.
Since then, relations have deteriorated rapidly, with the U.S. raising levies on $200 billion worth of imports, including handbags, to 25 percent from 10 percent, as well as starting the paperwork for placing 25 percent tariffs on the rest of Chinese imports, totaling around $300 billion and dragging footwear and apparel into the fray for the first time. Like previous rounds, China has retaliated with tariffs on $60 billion of U.S. goods.
President Trump has claimed on numerous occasions that China will pay for the higher tariffs, but the letter insisted that it would in fact be American companies that would be left with little choice but to pass the cost on to the consumer, with working class families suffering the most.
“There should be no misunderstanding that U.S. consumers pay for tariffs on products that are imported. As an industry that faces a $3 billion duty bill every year, we can assure you that any increase in the cost of importing shoes has a direct impact on the American footwear consumer,” it said. “It is an unavoidable fact that as prices go up at the border due to transportation costs, labor rate increases, or additional duties, the consumer pays more for the product.”
This was backed up with facts, with the Footwear Distributors and Retailers of America, the industry’s trade association, calculating that the government’s proposed actions will add $7 billion in additional costs for customers every single year and would be on top of the billions Americans already pay as a result of the current tariff burden on footwear imports that was started in 1930.
It also argued that while there have been suggestions that industries should quickly shift sourcing to countries other than China in the wake of these additional tariff threats, it’s not so easy for footwear.
“While our industry has been moving away from China for some time now, footwear is a very capital-intensive industry, with years of planning required to make sourcing decisions, and companies cannot simply move factories to adjust to these changes. Any action taken to increase duties on Chinese footwear will have an immediate and long-lasting effect on American individuals and families. It will also threaten the very economic viability of many companies in our industry,” it said.
In the apparel industry, some have taken steps to start to reduce their reliance on China, while others are getting their affairs in order to do so if new tariffs are implemented, but the process cannot be done over night and in some cases can take years.
One of those is Delta Galil Industries Ltd., the owner of Seven For All Mankind. Isaac Dabah, its chief executive officer, told WWD that just under 30 percent of its U.S. merchandise is currently produced in China, but if more levies are introduced then the Israeli-based apparel company would work to push that number down to 10 percent.
“We import about 28 percent of our merchandise for the U.S. from China. If it happens, we’ll have to move production elsewhere. It will take us some time, but it’s something we’ll be focused on doing,” he said, calculating that it would take around 18 months. As for where to move operations, Delta Galil will likely stick to Asia, and countries under consideration include Thailand, Indonesia and Vietnam, added Dabah.
Like the footwear industry, Dabah warned that it will be the consumer that will be squeezed by more tariffs as companies have little choice but to increase the price of products.
“If he [Trump] puts tariffs on, all it’s going to do is increase prices for the American consumer and I’m not sure it’s going to help the economy,” he said, although he is still hopeful that the two sides can make a deal before this happens.
This came as analysts at Goldman Sachs said that although S&P 500 companies generate just 2 percent of sales from Greater China, due to profit margin risk, a 25 percent tariff on all imports from China could lower consensus S&P 500 EPS estimates by as much as 6 percent.
“Tariffs pose a greater risk to company profit margins than to sales,” David Kostin, an analyst at Goldman Sachs, wrote in a note to clients.
This, however, is the worse case scenario and in reality is expected to be made smaller by companies through passing the cost on and adjusting supply chains.