In a few short hours, President Joe Biden will present his first State of the Union address to a joint session of the U.S. Congress. By all accounts, his speech will focus primarily on the crisis in Eastern Europe, following Russia’s invasion of Ukraine.
Another key topic is likely to be the U.S. economy, which is being squeezed by global supply chain issues and mounting inflation. Footwear prices, in particular, are seeing record-high levels of inflation, with shoe prices growing 6% in January year over year, according to data from the Footwear Distributors and Retailers of America.
Today, FDRA issued a letter to the White House that offers a potential solution to the Biden administration that can be enacted with the power of the pen. The organization urged the president to issue an executive order eliminating tariffs on shoes and other basic consumer goods through Labor Day 2022, in order to “truly attack inflation successfully.”
“Bold steps are needed to help American families before stagflation takes hold,” FDRA president and CEO Matt Priest wrote in the letter. “Eliminating tariff collections through summer will reduce prices on staples and give us a real shot at keeping our economy on track.”
FN spoke with Priest earlier today to discuss this latest proposal and other issues facing the footwear industry, including a looming concern at West Coast ports and the impact of the Ukraine crisis on energy prices.
How does today’s letter differ from other tariff proposals you’ve offered to the White House?
MP: “This is a more specific call to suspend the collection of all tariffs — not just the 7.5% [added by Section 301], but all footwear tariffs. We pay $4 billion a year in duties on a product that’s almost 100% now made overseas. We know the administration is going to be exploring ways to reduce the inflationary pressures on consumers, and we are just trying to put another idea in their heads. This is something they can do easily and, heck, make it short-term, but we think it will almost immediately reduce prices and then reduce inflation on our consumers.”
Why has this administration been slow to address tariffs so far?
MP: “When it comes to the tariffs put in place by Trump, if it’s a product coming from China, there’s a concern this administration will be seen as weak. But I think they can make a case for reducing the additional tariffs on consumer goods in hopes that will tamp down inflation, while also being surgical and targeting the product areas where China is really competing with us, like the aerospace industry and AI technologies. There’s a way to do it where you’re reducing the consumer impact while also maximizing the penalties on the Chinese.”
How hopeful are you that this will be adopted by Biden?
MP: “I’m wired to be hopeful, and sometimes to a fault. But a lot could change come November. If the president decides that this is not in his best political interest and in the country’s best interest, then the political result in November could create a totally different dynamic. The challenge of the Republican Party is that it’s kind of ditched its leadership in the trade space. So the question now comes down to what will be the prevailing view on trade if and when the House flips or the Senate flips to Republican control.”
Are there other actions the president should take on trade?
MP: “We understand he’s going to go after the ocean carriers, and that’s important. There are a number of pieces of legislation moving through Congress to apply pressure of the ocean carriers. But what’s missing, at least as of right now, is the focus on opening up markets and lowering duties and being proactive on the trade front in a way that’s positive, [like] reentering the Trans-Pacific Partnership. There is a reason why President Trump should not have withdrawn from the Trans-Pacific Partnership. It was a fatal mistake. And in order to correct that mistake, you don’t just do nothing, you actually reverse it and rejoin.”
What other concerns are on FDRA’s radar right now?
MP: “We keep hearing that the supply chain may not settle down until late 2023 or even 2024. So we’ll be really interested to see what the president says today about his efforts and what the infrastructure bill will do to help alleviate some of those concerns. But the other big thing that’s out there is the ILWU contract that expires on June 30 for the West Coast ports. If you recall, [the negotiations] in the spring of 2015 caused a port slowdown that had a negative impact on the flow of goods, but that was child’s play to what we are dealing with now. What you have is an ILWU that is empowered. And the whole world is watching. It’s a perfect storm for having additional congestion in the port. We signed a letter with a number of associations that came out today that [asks] the president to get involved now to get the labor dispute settled so that we can go into the summer with certainty.”
What are your predictions for footwear sales for 2022, in a year with no government stimulus?
MP: “We’re still seeing some positive numbers, so there will be modest growth. We think there will be money in the system and there’ll be growth in the economy over all. There’s a lot of strength in the economy now. The biggest challenge is inflation, and inflationary pressure was a thing even before Russia invaded Ukraine. The conflict could impact energy supply if they cut off exports of energy out of Russian. And all of this is going to drive up costs for [footwear companies] on the container side, the energy side and the material side — a lot of petroleum is used for components in footwear.”
Are there any bright spots in the shoe industry right now?
MP: “In spite of all the stuff that’s swirling around that is out of our control, our brands and retailers are figuring out ways to be innovative, focused on sustainability and circularity. There is a lot of momentum in that space, and even the smallest companies are focused on how they can make an impact and start to get their act together when it comes to sustainability. So I’m bullish about that. We have our shoe waste program, which allows us to partner with factories in China to help them better understand how to recycle their waste or create a return on investment by sorting their waste and selling it to recycylers. This is our third year of the program, or we’re going to have our biggest group of brands participate in yet. That kicks off in just a couple of weeks.”