On May 10, President Donald Trump raised tariffs by 15 percent on $200 billion worth of Chinese imports. The change is Trump's response to China not accepting his latest trade deal proposal. While sneakers were not part of this most recent increase, they could be affected in future. Today, Trump proposed to an additional 25-percent increase that would impact the footwear market as well.
"The retail prices on shoes made in China will have to go up if new tariffs are imposed," NPD Group industry analyst Matt Powell told Complex. "There is a misconception that China is paying the tariffs. This is false. The US consumer pays the tariff. Tariffs are taxes on the US consumer."
President and CEO of the Footwear Distribution and Retailers of America (FDRA) Matt Priest, elaborated: "We’re facing an additional $3.5 billion in Chinese tariffs coming in just because of this action that will take a couple months to decide which way the administration wants to go on it. So, if you’re a sneaker consumer, this isn’t on the receipt, this is built in to the cost of the shoe. It will be unavoidable that the cost will go up."
For instance, a sneaker might have an import price of $25. The current 20 percent duty rate would tack on $5 to the cost. If it retails at four times its import price, it will be on shelves for $120. Under the proposed increase, that same $25 shoe would receive a 45 percent duty, meaning that the retail would subsequently increase to $145.
"It’s going to drive up cost. The question is can Foot Locker or a boutique handle the increase, and is a consumer willing to pay them? Inevitably, when the cost goes up, the boutiques have to pass that on to the consumer," Priest told Complex.
For the unfamiliar, a tariff is simply a tax on imports and exports to help regulate foreign trade. Higher tariffs would, in turn, mean higher retail prices for US consumers. According to the FDRA, the footwear industry paid $2.99 billion in tariffs in 2018 alone. With 80 percent of the sneakers on the market currently produced in China, raising the tariff on importing sneakers could cause a bigger change on the market than you might think.
"We can’t affect it. The only thing we can affect is the way we go about our business. I think that’s the way companies have to look at it, too," said the owner of Packer Shoes, Mike Packer. "There’s a line you can pass and a line you can’t pass when it comes to pricing. Unfortunately, you have to deal with whatever the administration wants to do. Until elections come about again, you can’t affect anything. Any type of ramifications that come all the way through, you deal with it. It’s not keeping me up at night. It’s so upside down, you can’t control it."
Major companies, like Adidas and Reebok for example, have their own ways to combat the potential tariff hike. According to the brands, which operate under Adidas AG, most of the product they produce in China is for the Chinese market. Therefore, there will not be a major impact on its product in the US. In 2018, 42 percent of its total footwear volume was produced in Vietnam. Only 18 percent was produced in China. Despite this, Adidas did not have a comment on the proposed tariff hike.
The larger issue at hand for these retailers and brands could be that many consumers will not have the same money to allot to sneaker purchases that they once did. "Even if the sneaker shop is able to withstand direct impact, it may not be able to withstand the fact consumers are facing inflation on everything and may not decide to buy that new pair of shoes this month," Priest told Complex.
Other brands, including New Balance and Nike, were contacted but refused to comment. In 2016, New Balance faced backlash for supporting Trump, which was because he opposed the Trans-Pacific Partnership.
One area that isn't forecasted to be as heavily impacted by the proposal is the resell market. "There’s this built-in demand because of the limited supply [for many of these releases]. I think that will continue to operate in its own world," Priest said. "It’s a small amount of footwear that is traded amongst sneakerheads in relation to the 2.5 billion pairs imported every year. It will continue to be that and there will be other economic forces that drive that. I’m not entirely convinced tariffs will have a big play on reselling."