Tensions between China and the United States reached an all time high this year, with a trade war and government censorship fueling the angst. With the world’s two largest economies slapping punitive tariffs on billions of dollars worth of products and the ongoing divisive debates over free speech, here are the major moments of 2019.
Marking a turning point for the U.S. and China was a so-called “phase one” deal announced in mid-October that served as a temporary truce to their financial dispute. As part of the agreement, President Donald Trump paused plans to increase tariffs to 30% from 25% on $250 billion worth of Chinese goods, or the combined three tranches of tariffs in the U.S. Trade Representative’s Section 301 investigation. In exchange, China said it would purchase $40 billion to $50 billion worth of American agricultural products and agree to guidelines on intellectual property.
Since the announcement, however, Trump and China President Xi Jinping have made conflicting statements on what such an accord would entail — and whether it would’ve included the removal of another round of tariffs that were scheduled to take effect on Dec. 15.
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“[Tariffs have] caused severe damage to U.S. companies, the millions of U.S. workers they employ and the hundreds of millions of U.S. consumers they service,” American Apparel and Footwear Association president and CEO Rick Helfenbein wrote in a letter addressed to Trump on Dec. 12. “The uncertainty associated with the talks only magnifies the pain by forcing companies to create and constantly revisit multiple tariff mitigation scenarios.”
In June, hundreds of industry executives testified in Washington, D.C., in public hearings regarding tariffs on $300 billion worth of Chinese imports. Tariffs on the first round of that fourth tranche hit businesses on Sept. 1, introducing a 15% levy on certain Chinese products, including footwear, apparel and accessories. A 15% duty on the second round of the fourth tranche — also comprising consumer goods — was scheduled for Dec. 15. (At press time, Trump suggested that the U.S. is nearing an agreement that could put a halt to its trade war with China.)
With 70% of America’s shoes imported from China, footwear trade groups as well as brands and retailers — including Nike, Crocs, Macy’s and DSW — have expressed concerns over the raised costs within supply chains. Some companies, such as Puma and Steve Madden, have forecast a hit in profits and even suggested price hikes.
“2019 will be remembered as the year of uncertainty for the American footwear industry,” Footwear Distributors and Retailers of America president and CEO Matt Priest told FN. “This year will also be remembered as the year the footwear industry was fully engaged in advocacy. With a presidential election year upon us and no end in sight of the trade war, 2020 is certain to be an uncertain and chaotic year.”
Beyond the trade war, athletic brands have also found themselves wading into contested political issues abroad.
In October, friction occurred between the NBA and China when Houston Rockets general manager Daryl Morey tweeted his support for Hong Kong’s pro-democracy demonstrators. The tweet — which included the words, “Fight for freedom, stand with Hong Kong” — was deleted but still angered Chinese officials and fans.
The controversy highlighted the importance of China to the NBA: The country accounts for 10% of the league’s revenue — a share that some analysts project could increase to 20% by 2030.
Meanwhile, on its home turf, the NBA has sparked bipartisan backlash for appearing to submit to Chinese censorship, with lawmakers condemning the league’s response. Los Angeles Lakers star and Nike athlete LeBron James also drew heat for speaking on the issue, calling Morey’s tweet “misinformed” and suggesting the Rockets GM did not consider the ramifications of his words.
But it’s not just public denouncement: Morey’s comments also had financial consequences, with reports surfacing that some players may have lost out on deals with Chinese companies. Athletic brand Anta — sponsor of several NBA athletes including Golden State Warriors guard Klay Thompson — took offense at the tweet, announcing it would no longer align itself with the league.
Fellow sportswear label Li-Ning, which works with athletes such as Portland Trail Blazers guard CJ McCollum, also cut ties with the Rockets amid the debacle. Way of Wade, the Li-Ning-backed brand of retired NBA legend Dwyane Wade, added Golden State Warriors guard and former Nike athlete D’Angelo Russell to its ambassador roster — further proof of China’s importance to the league’s international expansion efforts.
Companies from all corners of the market were closely monitoring the situation in China, especially during the back half of the year when pro- democracy protests heated up.
While high-end fashion players were grappling with uncertainty surrounding Brexit in the U.K. as well as concerns about the U.S. economy and the challenged department store sector, the top worry during fashion month was the Hong Kong commercial landscape. Analysts estimate that Hong Kong accounts for between 5% and 10% of global luxury goods sales.
“The situation is troubling and certainly for our businesses, it is unprecedented,” said Pedder Group president Peter Harris, which operates On Pedder, the Lane Crawford shoe division and is a major retailer for most high-end shoe brands.
In the athletic sector, few had closer ties to the situation than Nike. The sportswear giant — also the exclusive on-court uniform provider of the NBA — is considered the leading athletic company in China, with a 22.1% market share, according to a 2016 Euromonitor report. It has also positioned itself as a champion of free speech, casting former NFL quarterback Colin Kaepernick, for example, in a polarizing anniversary campaign that debuted on Labor Day in 2018 that was met with boycotts.
On its earnings call in September, CEO Mark Parker called Nike “a brand of China for China” — words he has used in the past when outlining its growth plans in the country. (Greater China — which includes mainland China, Hong Kong, Macao and Taiwan — had driven double-digit revenue growth for Nike for 21 consecutive quarters.)
In June, the Swoosh pulled the remaining sneakers from its collaboration with Japanese streetwear label Undercover from retailers in China after the Jun Takahashi-led brand posted an image in support of the protests. A similar incident befell Vans in October in the heat of the controversy: The skate brand removed a sneaker design featuring figures in gas masks and hard hats from its annual customization contest. “We have never taken a political position and therefore review designs to ensure they are in line with our company’s long-held values of respect and tolerance,” the company said in a statement.
The uproar demonstrated the pressure faced today by American brands that sell merchandise in China. While some companies opted for silence or remained neutral to avoid strains, others were willing to risk losing business in favor of taking a stance that supports the values of their customers.
“The U.S. consumer has made it clear that they want brands to take visible stands on social issues; it is possible those positions will not resonate in other cultures, but brands that want to win in the U.S. are left with no alternative,” said The NPD Group senior sports industry adviser Matt Powell. “This illustrates the downside of the world being flat. Western brands have been leaning hard to China for growth, [and] these brands may have to sacrifice some of that growth to maintain their position in the U.S.”