Two days after the U.S. presidential election in November, Steve Madden revealed plans to slash imports from China to the U.S. by 40 percent to 45 percent over the next year. The drastic shift represented a forewarning of the potential chaos the footwear industry may face should President-elect Donald Trump follow through on his campaign pledge to slap steep and sweeping tariffs on imports from other countries.

On the campaign trail, Trump pledged a 60 percent tariff on goods imported from China and a 10 percent to 20 percent tariff on goods from all other countries on the belief that tariffs on foreign goods will help benefit U.S. manufacturing and create jobs.

“Tariffs are the greatest thing ever invented,’’ Trump said at a campaign stop in Flint, MI in September.

Since election day, he has indicated he could also impose 25 percent duties on all imports from Mexico and Canada and an additional 10 percent duty on Chinese imports. He has further threatened 100 percent tariffs on the BRICS group - comprising of nine emerging market countries including Brazil, Russia, India and China.

Some have suggested Trump’s tariff threats may be campaign bluster, or an opening salvo in future trade negotiations as they may run counter to his other vow to bring down consumer prices. However, Trump has advocated tariffs for decades, and in his time in the White House, he did not shrink from taxing other countries, including imposing tariffs that targeted imported solar panels, steel, aluminum as well as pretty much everything from China.

In 2019, Trump’s new tariffs added a 15 percent duty on about half of the footwear imports from China. He later lowered the rate to 7.5 percent in 2020, where it remains.

Trade Associations Weigh in on Potential Tariffs

Retail trade groups have come out strongly against Trump’s proposed plans to escalate tariffs.

National Retail Federation (NRF) president and CEO Matthew Shay said that while new trade policies could stand to “increase America’s competitive advantages” in innovation and infrastructure, “the adoption of across-the-board tariffs on consumer goods and other non-strategic imports amounts to a tax on American families.”

“It will drive inflation and price increases and will result in job losses,” he asserted.

Just before the election, NRF issued a study showing Trump’s pre-election tariff proposals could cause American consumers to lose between $46 billion and $78 billion in spending power annually.

Specifically in footwear, NRF’s study found with already high tariff rates on U.S. footwear imports climbing from four to six times under Trump’s proposals, prices of footwear would increase by 18 percent to 29 percent. NRF wrote in the study, “The price of a $90 pair of athletic shoes would jump to $106-$116, a $48 pair of women’s slippers would cost $57-$62, and a $30 pair of girls’ ‘Mary Jane’ shoes would cost $35-$39.”

NRF did find that U.S. production would increase as China imports decline but consumers would pay $32 for every additional dollar earned by U.S. footwear producers.

The American Apparel & Footwear Association (AAFA) notes that the Tariff Act of 1930 helped create the Great Depression and the Section 301 tariffs in 2018 under Trump’s first term that have remained in place under the Biden administration have played a part in driving 40-year high inflation for clothes and shoes.

“Imposing levies is not a path to real leverage,” AAFA president and CEO Steve Lamar, told Footwear Insight. “Foreign countries aren’t going to change behavior just because it is more expensive for Americans to get dressed every day. But those countries will likely impose their own tariffs (which could trigger more tit for tat tariff actions). Consumers and U.S.-based brands are in for a white-knuckle ride with the tariff threats coming to fruition as soon as January 20th.”

Mitigation Options for Footwear Brands?

Matt Priest, president and CEO of the Footwear Distributors and Retailers of America (FDRA), told Footwear Insight that with 99 percent of shoes imported into the U.S. market, including about 95 percent from China, Vietnam and Indonesia, the footwear industry has limited mitigation strategies other than to raise prices to offset the cost of tariffs.

Sourcing out of China has already been slashed from 87 percent of volume (70 percent in dollar value) in 1989 to 57 percent in volume (36 percent in value) currently, according to Priest. However, China remains the largest footwear importer to the U.S. and appears most at risk of tariff actions given the trade disputes and geopolitical tensions between the two countries.

Should accelerated tariffs on China arrive, more sourcing may shift to Vietnam, which has become the largest U.S. importer of athletic footwear. However, Vietnam could also face tariffs moving forward — it ranks among the top three countries with the highest trade imbalance with the U.S.

Other countries generally don’t have the infrastructure to handle the footwear volume.

Lamar said, “There simply isn’t the capacity in other parts of the world that we have in China and Vietnam, and it will take decades for that to be replaced at scale.”

Also, while some brands are exploring nearshoring, or working with factories in Latin America and the Caribbean, to be closer to market, the uncertainty about new “surprise” tariffs popping up might give pause to such experiments.

More U.S. Production?

The only safe haven from tariffs is U.S. production, but industry participants aren’t anticipating a trade war to fuel a revival in U.S. footwear production. Said Priest, “We import 2.5 billion pairs every year into the U.S. and we only make 25 million pairs. So, it is literally like a rounding error on a very, very, small percentage. And it’s because we have an insatiable appetite for footwear here in the states, and we just cannot produce at the volumes that are necessary for that for our consumers.”

Lamar said that while footwear vendors are exploring a wide range of mitigation tactics, the primary offset for footwear as well as apparel tariffs has been to raise prices.

“Ultimately, higher tariffs will be passed along to the consumer, either as higher prices, reduced product selection (such as phasing out low price offers), or reformulating products so they have fewer features and less functionality for the same amount of money,” said Lamar. “Because you can’t simultaneously have widespread tariffs and low prices, if the Trump campaign proposals are fully enacted, Americans should indeed expect to see price increases across the board.”

For the footwear industry, the threat of tariffs “is just creating more uncertainty” that impedes planning, according to Priest.

“We need certainty,” said Priest. “If you’re designing a pair of athletic shoes, you need like a year and a half, two years, from basically CAD file to the retail store. And if you throw in these costing fluctuations, it’s really hard to plan.”

Challenges Around Long Lead-Times

In interviews with Footwear Insight and on recent quarterly analyst calls, vendors likewise discussed the challenges of avoiding price hikes and managing the unknowns from potential tariffs.

Dan Sheridan, CEO at Brooks Running, told Footwear Insight, “It’s a difficult puzzle to solve, as the footwear industry already has high tariffs. Additional tariffs would be a significant headwind not just for Brooks, but the entire category. To absorb these costs as a business, we would have to reduce investments in R&D, product creation, consumer demand creation, and other critical areas. Most likely, we would have to pass along these penalizing tariffs to the consumer in the form of price increases.”

U.S. footwear importers pay 4.5 times the average duty-rate paid on most other U.S. imports, according to AAFA.

On Steve Madden’s third-quarter analyst call, CEO Edward Rosenfeld said the brand has been “planning for a potential scenario in which we would have to move goods out of China more quickly,” having developed a factory network in Cambodia, Vietnam, Mexico and Brazil for several years. Steve Madden’s goal is to have just roughly one-quarter of its business be subject to potential tariffs on Chinese goods.

Amer Sports, the parent of Salomon, Arc’Teryx, Wilson and other sports and outdoor apparel brands, indicated it would likely explore price hikes should adverse tariffs arrive.

“We have some degree of flexibility to adjust our supply chain,” Amer Sports CFO Andrew Page said on the company’s Nov-19 third-quarter earnings call, “but price increases will be the primary tool we utilize should tariffs occur.”

Peter Sachs, U.S. general manager of Germany-based Lowa Boots, told Footwear Insight, “Tariffs are simple. Tariffs are a tax hidden in the cost of goods which increases the price a consumer will ultimately pay. The higher the tariff, the more a consumer will ultimately pay. They cannot in any way be considered an added value to a product or brand. Lowa produces 98 percent of our boots and shoes in EU countries and 2 percent in Vietnam. We already pay $1 million plus in duty and tariffs so anything additional will only increase prices. We don’t plan to do anything until the new administration takes office and we see reality versus all the hot air talk of a campaign.”

Tim Boyle, CEO at Columbia Sportswear, said his company strategically reduced its exposure to China sourcing well before the arrival of Trump’s first administration. About 20 percent of its footwear and a low-single digit percentage of its apparel comes from China.

However, Boyle told analysts on an Oct.-31 call that he was still “very concerned” about the imposition of tariffs.

“The products that we make, the commodities that we engage in footwear and apparel are among the most highly tariffed in the United States,” said Boyle. “Some of the product carry nearly 40 percent duties and that has not translated into increased investment in domestic production. So, we believe that the argument about tariffs improving the domestic production of items such as footwear and apparels are fallacious… But we consider ourselves to be very adept at managing tariffs and duty rates globally, showing that we’re very successful at that international business.”

“At RG Barry, we are dedicated in our commitment to putting consumers and our retail partners first,” Bob Mullaney, CEO at RG Barry Brands, the parent of Dearfoams, told Footwear Insight. “As an industry, we must navigate these tariffs thoughtfully and running to another country isn’t necessarily the only answer. This is a time for measured responses, not overreactions. Ultimately, earning and maintaining consumer trust is paramount, as is continuing to deliver uncompromising quality and value. And if we’re passing along costs, we need to give consumers greater perceived value, always demonstrating that our focus remains firmly on their needs.”

Vendors Hoping for Minimal Disruption

Chris Hufnagel, president and CEO of Wolverine World Wide, the parent of Merrell, Saucony and a number of other footwear brands, said on its Nov.-9 analyst call that Wolverine had reduced the amount of product sourced from China from 40 percent in 2009 to the mid-teens currently. He said, “As we hear more, we’ll obviously contemplate things that we need to go do to make sure we can protect and see to grow the business.”

Skechers’ CFO John Vandemore said on an analyst call earlier this year that Skechers’ sourcing network is largely split between China and Vietnam with each country representing in the “40-ish percent range.” The brand also does a “pretty significant business” selling into China that wouldn’t be affected by tariffs on U.S. imports.

He said Skechers continues to look for opportunities to diversify its production, partnering with factories in India, Indonesia, Turkey, Mexico and elsewhere. However, he still said it’s challenging to deal with trade uncertainties. “I think the one thing that we’ve learned is you can’t really react to hypotheticals, but you need to be very quick to react to actual results, Vandemore said. “And so, we’ll be poised to react should we need to, although I would note again, it’s going to be limited by that footprint. And I’d say the footprint of the footwear industry and apparel industry as a whole.”

Vandemore added that competitors will be feeling the same pressures. He elaborated, “Our anticipation is you’re going to have to see quite a bit of adjustment across the industry, not just with one brand or another.”

Silver Linings

One side benefit from the tariff threat, notes FDRA’s Priest, has been increasing awareness around the impact of tariffs. A post-election survey of 2,000 voters commissioned by the FDRA found 74 percent of Republicans and 53 percent of all Americans support tariffs on computer chips or products vital to national security, but a solid majority, including Republicans, oppose raising tariffs on essential household items as well as kids’ shoes and running/walking shoes.

Priest said the survey shows Americans “understand they are the ones who ultimately bear the cost” of tariffs. He hopes any tariff action from the incoming Trump administration avoids consumer goods as other surveys show consumers continue to face inflation fatigue.

Lamar hopes a deeper exploration of trade leads to stronger, long-term trade agreements and trade preference programs solidified with other regions, including renewal of the soon-to-expire African Growth and Opportunity Act (AGOA) and Haiti HELP/HOPE programs as well as the long-expired Generalized System of Preferences (GSP) program.

He also said the incoming Trump administration may be more open than the current administration to initiating new trade agreements, noting that Trump signed the US-Mexico-Canada Agreement (USMCA) that updated the NAFTA agreement.

“If tariffs continue to be widely or loosely threatened, as they have been, trade policy only becomes more chaotic, which hurts American consumers and U.S jobs and competitiveness,” said Lamar. “They could also undermine some of the accomplishments – such as USMCA, which is a significant source of leather footwear – that former President Trump achieved in his first term.”