Asian sneakers industry shows limits of Trump’s trade policy
Manufacturers cautioned president-elect that most lost jobs won't be coming back, but higher costs for consumers could
President-elect Donald Trump’s announcement on Monday that he will pull the United States out of the Trans-Pacific Partnership (TPP) trade deal on his first day in office is unlikely to sit well with some major American companies.
Firms from appliance makers to auto parts suppliers had been lining up to offer a quiet caution to Trump that most lost manufacturing jobs won’t be coming back, but higher costs for consumers could.
Consider the sneaker industry, one of the first to move to Asia because of the sharply lower cost of production in China and Vietnam.
Nike Inc and its smaller, privately held rival New Balance Shoes Inc are split over the question of whether the US should turn its back on the TPP.
But both companies and the analysts who track them agree Asia is poised to keep its dominance as the industry’s manufacturing hub.
Companies like Nike have invested too much in those lower-wage economies to consider moving factories, even if tariffs rise and push up costs for American consumers, analysts say.
Any new hiring in the United States will be years down the road and depend on refining production technologies like 3-D printing that could make it profitable to hire relatively small numbers of American production staff.
The same dynamic applies to other industries, like auto parts, which have moved production to Mexico over the past two decades, executives say.
That suggests a problem that the Trump administration will bump against if it tries to pursue a harder line on trade agreements from NAFTA to TPP.
Shoe companies, like other manufacturers, could be forced to pass on higher costs to consumers, but few executives see a serious case for new hiring in the US because of a change in tariffs on imports.
The US imports about 98% of its footwear — 2.5 billion pairs last year, or nearly eight pair for every man, woman and child. Shoemaking went offshore decades ago, mainly to China, because the process is so labor intensive. Making a single pair of running shoes can require up to 80 production steps.
The average shoe worker in Vietnam earns about US$245 a month, while shoe tariffs can range from zero up to 48%, according the US International Trade Commission. The average is just over 13%.
“The ones that stand to lose out here are consumers, because if we start to eliminate trade deals, they’ll be paying a lot more for shoes,” says Matt Priest, president of the Footwear Distributors and Retailers of America, which represents the industry in Washington.
New Balance, based in Boston, makes only about a quarter of the shoes it sells in the US at its five New England factories, and figures that costs 25% to 35% more than it would to make them in Asia.
The private company, owned by former marathoner Jim Davis and his wife Anne, says it makes up for that cost disadvantage in part by producing higher-end and customized shoes in those US plants. If the company were publicly traded, it would likely face pressure from shareholders to move all its production abroad.
Beaverton, Oregon-based Nike imports nearly all its shoes, and fought for the TPP, a trade deal that became a lightning rod in the recent presidential campaign.
Nike said last year that it would create 10,000 manufacturing and engineering jobs in the US if the deal were adopted. Nike has clarified that those jobs would largely be aimed at creating more automated factories, not old-style production that would employ thousands of assemblers.