China Trade War Refuels Talk of Sourcing Alternatives, but There’s No Solution for Most Brands

For all of the uncertainty around the U.S. China trade war, the Trump administration has at least made one of its objectives clear: Bring manufacturing jobs back to American workers.

Currently, 98% of the shoes sold in the U.S. are made abroad, with China accounting for about 70% of the total, so there’s no denying that an additional 25% tariff — as the president has threatened to impose — would hit the footwear industry hard.

But even so, manufacturers say the move is unlikely to prompt a mass influx of shoe production within domestic supply chains, despite Trump’s recent tweet exhorting companies to get out of China if they want to avoid the taxes. (“Make your product at home in the USA and there is no tariff,” it read. “You can also buy from a non-tariffed country instead of China.”) For one thing, much of the talent and infrastructure needed to support the multibillion-dollar industry has long since moved overseas. And for another, producing even a single pair of shoes is far more complex a process than most pro-tariff arguments imply.

“To make an athletic sneaker, for example, we might actually use 20-plus factories — definitely more than a dozen,” said Sabrina Finlay, CEO of Otabo, a manufacturer for emerging and leading shoe brands. “We might be doing some part of it in China, some in the U.S. and some in Europe to actually get to a finished product. And so to say that we’re going to get around this issue [by shutting] down the primary assembly factory in China, it’s not a solution.”

Otabo practices what it calls “collaborative manufacturing,” working closely with a network of factories around the world and connecting them with the brands they work with, including NOBULL and Kujo Yardwear. In one U.S. factory, Finlay said, she’s witnessed firsthand how valuable an international supply chain can be, since the company has brought over processes that it has developed in China to help improve the factory’s technology and quality control, diversify its offerings and add efficiencies. “We see this as our future,” she said. “This is how we actually grow more manufacturing in the U.S. It’s how we grow manufacturing across international communities.”

The footwear industry has been among the most vocal opponents of the new set of proposed tariffs — which would affect about $300 billion worth of Chinese imports, including most consumer goods — in part because shoe imports are already so heavily taxed, with existing duties averaging 11% and topping out at 67.5%. On Monday, more than 170 prominent shoe brands and retailers, including Nike, Foot Locker and Brooks Sports signed a public letter to President Donald Trump condemning the potential additional taxes as “catastrophic for our consumers, our companies and the American economy as a whole.”

Several of the biggest shoemakers — Nike, Adidas and Puma among them — have in recent years shifted some of their production to Vietnam and other countries as labor costs in China have risen, and will likely continue to do so as the trade war uncertainty continues. Doing so, though, requires significant resources to invest in manufacturing infrastructure and training — something most smaller brands don’t have access to.

These companies, said Finlay, will likely bear the full brunt of the tariffs if they are imposed, and be forced to pass on costs to the consumer. “If you are a smaller brand, and you rely heavily on the cash flow from one production order to get to the next, those brands are definitely reacting in a very different way,” she said. “They’re holding back and prioritizing better-selling SKUs over other SKUs. They’re generally more cautious about how they’re going to launch and how they’re going to spend their money in case something doesn’t work out well.”

The threat of higher import costs — and of consumers’ having less to spend on shoes if other prices go up, too — also discourages spending in other arenas, so brands might hold off on hiring staff, moving to a new office or investing in new manufacturing.

According to the Footwear Distributors and Retailers of America, an additional 25% tariff would amount to a $7 billion annual tab for U.S. shoe customers. Already, several publicly listed retailers have warned investors about the potential fallout, including Kohl’s and J.C. Penney, both of which lowered their earnings forecasts this week, citing the potential costs. Kohl’s indicated that it might absorb some of these itself to stay competitive, since its customers tend to be value-driven, and could go elsewhere if prices become too steep.

“Our teams are working very closely with our vendors to make sure that collectively, we’ve got a strong plan,” said CEO Michelle Gass on Tuesday’s earnings call. “So that’s been of the highest priority for our merchant leaders and merchant teams. But I think it’s important for us wherever this nets out, we’re looking at this from a long-term standpoint, and we’re looking to make sure that we can protect the customer and protect our market share.”

Companies of all sizes will have to make this judgment, keeping in mind that next year’s election could change the equation entirely, and those with fewer resources to work with also have fewer options.

“In the near term, as far as ‘How do you get around this?’ You don’t,” said Finlay.

Correction: This article previously listed several brands no longer associated with Otabo. It has been amended to note the company’s current brands.

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