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Tariffs - FDRA: Proposed Tariffs Would Equal US Footwear Industry’s US$3.5 Billion Payroll
16 May 2019



According to the Footwear Distributors and Retailers of America (FDRA), President Trump’s newest proposal to add an additional US$300 billion in duties on apparel, footwear and textiles imported from China could cost Americans US$7 billion more each year in footwear alone.

Early Monday evening, the Trump administration filed a new proposal that would see an additional 25 percent duty added to imports of a wide range of clothing and textiles. Trade groups including the American Apparel & Footwear Association called the proposal “catastrophic for the American economy.”

Matt Priest, president and CEO of the FDRA, agreed with that sentiment.

“We are very concerned about this next step. This is a direct threat to the profitability of the vast majority of our members and a lot of the footwear industry, at large,” Priest told Sourcing Journal. “A 25 percent tariff on top of the tariffs that we already pay would be catastrophic. This is going to be a job-killer, it’s going to drive up prices significantly, it’s going to really cut into our ability to be competitive.”

Priest said that the footwear industry currently pays around US$1.5 billion in duties due to existing tariffs. Already, 100 percent of all imports is subject to duties and 69 percent of those goods would be vulnerable to a 25 percent increase if President Trump’s proposal is approved. An increase of that amount would account for another $3 billion in duties for importers, resulting in a situation that Priest said is simply “hard to conceptualize” when considering the full breadth and depth of its impact.

To illustrate that impact, Priest said the estimated US$3.5 billion in added costs from the administration’s proposed tariffs would nearly equal the combined payroll of every footwear company in the United States. By the time footwear companies further mark up their products to bear that financial burden, consumers will be forking over US$7 billion more at checkout this year.

FDRA calculates that footwear like basic children’s shoes would increase in cost from $10 to $15 under the proposal, with more costly purchases like running shoes increasing on average from US$150 to US$206.25. Even the simple canvas sneaker will increase in average price from US$49.99 to US$65.57 if the Trump administration goes through with the tariff proposal, the FDRA said.

Perhaps the most damaging outcome for Trump, the group added, will be that the average price of hunting boots—popular in the heartland where much of his electoral support comes from—will increase from US$190 to US$248.56 under his policies.
Proponents of the administration’s trade policy say tariffs close off marketplaces, forcing those in the region to go elsewhere. However, Priest argues that the short-term effects of this strategy are unlikely to be worth it even if the long-term effect of moving suppliers out of China ends up being beneficial—which he noted is difficult to measure, considering brands were already moving away from China before the trade war began.

“Because footwear is capital-intensive, because it takes a lot of investment to build infrastructure and capacity, that means it cannot move quickly in the face of a looming tariff increase,” Priest said. “That means it’s inevitable that Americans will foot the bill for this and it seems to me to be entirely avoidable.”

Priest said there hasn’t been a comparable situation facing the footwear industry since the 1930s, when an overwhelmed Hoover administration passed the Smoot-Hawley Tariff Act, a display of protectionism that many historians believe exacerbated the Great Depression. Since then, Priest said, American businesses have been working to “claw their way out of” a regime of tariffs that affects the industry to this day.

“We have a 90-year legacy cost that was applied then,” he said. “So, anytime someone is talking about putting new tariffs on footwear, that gets us really nervous because we know how hard it is to pull those back once those are applied.”

In the end, Priest said the US7-billion impact on American shoppers would be inevitable if the new list of tariffs is approved. No matter how you spin it, an additional 25 percent tax on a product or good will be passed down from suppliers to distributors to retailers—all the way to the consumer. He also acknowledged that this scenario will be particularly hard to swallow for mid-level suppliers and wholesale brands, as many of those companies are heavily invested in China and lack the capital to shift sourcing before the impact of the tariffs hits.

“Uncertainty is going to be really difficult to navigate,” Priest concluded. “Particularly for those companies that are heavy in China. But, I can tell you that there are a lot of great people thinking about how to navigate this and diversify out.”

By Christopher Hall – Sourcing Journal

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