Why Vietnam Is Only a ‘Short-Term Fix’ for the Trade War

As a shrinking manufacturing sector and the threat of tariffs continue to loom over China, Vietnam has emerged as one of the neighboring countries reaping the most benefits of a trade influx.

But according to one shoe industry executive, the surge may just be temporary.

At the Footwear Distributors and Retailers of America’s annual Sourcing and Sustainability Summit today in New York, Mike Jeppesen, Wolverine World Wide’s president of global operations, sat down with the trade group’s president and CEO, Matt Priest, for a discussion on sourcing trends amid the protracted tariff war between China and the United States.

Although rising wages and labor shortages have driven supply chains outside of China, Jeppesen noted that Vietnam’s lack of skilled workers has increasingly become a barrier to the country’s growth.

“The short-term fix is Vietnam, but it’s unsustainable because it’s basically maxed out,” Jeppesen said. “There’s really no labor availability to be found, so it has to be tapered off, [and] we’ll see the prices go up [even though] labor costs in Vietnam are lower than [in] China.”

So far, President Donald Trump has imposed a 25% levy on $200 billion worth of Chinese goods, warning of additional duties on another $300 billion that would include consumer products such as footwear and apparel.

Less than two weeks ago, Vietnam’s Customs Department released data indicating a trade surplus with the U.S. According to the report, exports between the months of January and June surged 27.4%, compared with the same period in 2018. In the first five months of 2019, the U.S. trade deficit with the Southeast Asian nation was $17.1 billion, versus $12.94 billion last year.

Vietnam is also the second largest exporter of shoes to the U.S. after China, making up 18.7% of 2018’s footwear imports, according to the Commerce Department. (By comparison, China accounted for 69.2%, a 21-year low.)

“China will still to be a part of the sourcing scene over the next five years simply because there’s so many raw materials suppliers in China,” Jeppesen added. “[But] whether this trade war manifests itself in increased duties on China or not, you have to diversify. Whether you’re a big or small company, you have to find a way to get out of China and find other sources.”

Among the countries Jeppesen expects will pick up the slack include neighbors Cambodia, Bangladesh, Indonesia and the Philippines. However, the undertaking is predicted to be costly and time-consuming, with hundreds of shoe companies scrambling for new strategies to evade higher costs.

Mexico has also seen an acceleration in production, with direct-to-consumer brand Thursday Boot Company and footwear retailer Steve Madden among the companies with parts of their supply chains based in León, a city in the central state of Guanajato.

“We had a little bit of a head start because we have a viable operation in León, Mexico, that’s producing shoes for us [as well as] production in Brazil and Vietnam,” said Cherie Blum, COO of Steve Madden’s buying agent, Adesso Madden Inc. “It’s a matter of looking at our total business and determining what product types make the most sense to move.”

Mexican Footwear Chamber board member Luis Humberto Vela added, “This brings a great opportunity for Mexico as a good alternative for sourcing. We can deliver in one week door-to-door. We have no duties. We have very competitive labor costs.”

Over the past few months, members of the footwear and apparel industries have stepped up in droves to fight Trump’s threatened and enacted tariffs against China — even testifying before the Office of the United States Trade Representative during last month’s seven-day public hearings on additional duties.

“The administration is walking this fine line of having something short-term and impactful [that] creates leverage for negotiation,” Priest told FN at the time, “or extending this in perpetuity and then really harming the U.S. economy going into the election year.”

Watch FN’s interview with these top shoe players.

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