Hundreds of companies, including many sports brands and retailers, are traveling to Washington and posting testimony for this week's hearings in the U.S. Congress on the planned new round of punitive tariffs against China.
Even New Balance, an early supported of U.S. President Donald Trump that has its own assembly factories in New England, is voicing its opposition because many of the components it uses come from China.
The U.S. Sports & Fitness Industry Asssociation (SFIA) already started on May 14 to collect arguments to at least obtain exemptions for some products, and its efforts will also benefit foreign companies that are selling Chinese-made products in the U.S.
Many companies in our sector have accelerated a reassessment of their sourcing strategies while Trump continues to play hardball with the Chinese government, threatening to raise import duties by a further 25 percent on a number products, including footwear and many other sports items, by Aug. 1. If that happens, duties paid on shoe imports into the U.S. annually would jump from about $3 billion to $3.5 billion.
Trump's tactics apparently triggered some positive results earlier this month after he warned of similar measures against Mexico, where many U.S. companies sources some of their products. Imports from Mexico are duty-free, but Trump warned that they would all be taxed at 5 percent unless the country's government would deploy its National Guard to stem the flow of immigrants from Central America seeking asylum.
Leaders of the Apparel and Footwear Association (AAFA) and Footwear Distributors and Retailers of America (FDRA) expressed relief after Trump tweeted that the Mexican government had accepted his demands, subject to parliamentary endorsement. Last year, U.S. imports of footwear from Mexico went up by 20 percent to $500.2 million.
It will be a more difficult story after Trump meets Chinese President Xi Jinping at the G-20 Summit in Japan on June 28-29. The U.S. already imposed new import duties on Chinese products last September, and Beijing responded by imposing duties on $60 billion worth of American products. Last month, the U.S. government threatened to raise tariffs from 10 percent to 20 percent on $200 billion worth of Chinese products unless Beijing changes its unfair trade practices.
The Chinese president warned that his country was ready for another “Long March” on the issue. It may be willing to wait until the new U.S. presidential election next year.
Washington lobbyists are saying that the trade war with China was causing disruption in their industries 'sourcing strategies and that any new duties would have to be ultimately reflected in higher prices for American consumers.
Many U.S. companies have accelerated their imports of shoes from China in the expectation of higher duties, resorting like Lululemon to expensive air freight. Many have also indicated that they will speed up a process of diversification in the sourcing of footwear from China to Vietnam and other low-cost countries.
Among them, Crocs said that it is planning to reduce the share of the production coming into the U.S. from China from 30 percent to 10 percent by 2020, as the new duties would raise its annual costs by $5 million.
Most of the big players, including Adidas, Nike and Asics, have already shifted much of their sourcing from China to Vietnam, where capacities are limited, and to other sources.
However, if the current trade war triggers negative consequences for the Chinese economy, both Adidas and Nike would suffer because of their huge presence in the country. China is generating about 45 percent of Adidas' operating profits and 27 percent of those of Nike.
European companies are looking at the debacle with interest. Higher duties on imports from China could make some of their lower-priced products more competitive in the U.S. On the other hand, some of them will get an indirect benefit if Present Trump wins his fight in favor of intellectual property protection and against state support for Chinese manufacturers.
