The president-elect has promised to set the country on a dramatically different course — and he is expected to usher in significant changes in business and labor regulations, taxes, international trade, cargo-container port security, jobs programs, health care and energy.
Amid a serious recession, Obama will first tackle a bold stimulus package, expected to cost $775 billion and include $300 billion in tax cuts for workers and businesses. Footwear firms are hoping to get in on the stimulus action by including the Affordable Footwear Act in the broader plan.
The president-elect’s policies on international trade and maritime security will also have a major impact on industry players — who imported $17.7 billion worth of product from January to November 2008.
And many footwear execs are optimistic. “As we have seen through the financial crisis and the interweaving relationship of the entire world economy today, the likelihood is that the administration will be looking for ways to improve our society and our country’s business activity through honest, open cooperation with foreign countries, rather than with punitive measures that make things more difficult,” said Larry Tarica, CEO of Jimlar Corp.
Duties Battle Resumes
For the past several weeks, footwear leaders have been lobbying hard for the Affordable Footwear Act to be added to Obama’s proposed economic stimulus and recovery package.
The Affordable Footwear Coalition, a group of footwear brands, retailers and trade associations, recently sent a letter to Obama pushing for the inclusion of the bill, which would eliminate some $800 million in tariffs across several footwear categories. The coalition argues that duties on certain types of lower-priced footwear and children’s shoes are a regressive tax hurting low- to middle-income families. The bill would eliminate roughly 43 percent of the $1.8 billion in annual duties collected by the U.S. government. Combined, companies and trade associations have spent more than $900,000 in the last year and a half on the initiative.
“Our primary focus has been on getting the AFA language in the economic recovery package,” said Kevin Burke, president and CEO of the American Apparel & Footwear Association. “What could be more appropriate than providing economic relief to lower-income families to reduce the price of footwear? If you spend less on footwear, you can spend more on something else.”
The coalition is reiterating a long-standing argument that the tax is no longer protecting a domestic manufacturing base and should be abolished for that reason alone.
“The tax does nothing to add jobs to the U.S.,” said Matt Rubel, chairman and CEO of Collective Brands Inc. “In fact, it has impeded retail jobs.”
Executives who have been lobbying for the AFA on Capitol Hill are hopeful about the final outcome. “We’ve had a significant number of people on Capitol Hill say they will not let a stimulus package get through unless it has a footwear [tariff cut] in there,” said Greg Tunney, CEO of R.G. Barry Corp. “I was amazed at the lack of understanding among people that as an industry we pay $800 million a year on tariffs. It has to come right off the bottom line.”
Obama’s Trade Agenda
Will Obama take a more “protectionist” stance on trade and throw up barriers to imports? That is the question on the minds of many footwear execs. The president-elect took a tough position during the campaign, saying he would review existing trade deals and try to strengthen labor and environmental provisions within them. However, his message did appear to change somewhat after the primaries, when he said he would support efforts to revive the global round of Doha trade talks.
The footwear industry is watching the trade issue closely, since the vast majority of production is in China. “[Obama] has talked a lot about keeping jobs in America and about fair trade, but he also has supported free trade,” said Burke. “We’re watching to see how he will define what free trade really means, whether there will be more regulations on companies and whether there will be more government restrictions on [imports] to meet the definition of free trade.”
“I’m very supportive of the leadership approach [Obama] is taking,” said Rubel. “I am an advocate of free trade, and Ron Kirk, [Obama’s pick for trade chief], seems pro-trade and highly qualified.”
Jerry Turner, chairman of American Sporting Goods Corp., said Obama has so far been a “pragmatist” on trade, which he finds encouraging.
“He seems to be making cabinet appointments down the middle, as opposed to being leftist and non-free trade,” said Turner. “A lot of what he said in rhetoric does not seem to apply in his execution so far. I’m very pleased with the movement I’ve seen.”
Still, Jimlar’s Tarica expects trade to take a back seat in the Obama administration in light of the recession and wars. “The range of challenges that the current administration is facing both economically and politically, and domestically and internationally, is sufficient enough, and I have a hard time imagining that this trade agenda is going to be very high on their list.”
China & Currency
The footwear industry kept a cautious eye on Congress last year as it threatened to pass legislation to impose punitive duties on Chinese imports because of currency manipulation. While Congress held off on putting anything through, the issue could gain traction in the new administration.
Obama said during the campaign he would crack down on currency manipulation, which set off some alarm bells for executives. About 87 percent of U.S. footwear comes from China, according to the AAFA, and footwear execs warned that enacting punitive legislation would only hurt U.S. firms doing business in China and might spark retaliatory action against U.S. exports.
But domestic industries and some Democrats in Congress argue that undervalued currency gives Chinese exports an unfair advantage against U.S. producers because it makes the price of imports so cheap.
“The Bush administration put a tremendous emphasis in trying to bring China’s currency up, which in turn raised the cost of production,” said Turner. “Frankly, all that it has done is greatly escalate the cost of footwear and apparel coming into the U.S.”
Tunney said he believes the AFA tariff-dropping bill could act as a trade-off with China. “By having this tariff proposal out there, maybe we can talk to China about [undervalued currency],” he said. “We can say we are doing our part at lowering this and making products more available in our marketplace, and at the same time, [they] need to work on [their] currency rates.”