Run the Numbers: US-China Trade War May Send Imports to a Record Low in 2019
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In our new column, Run the Numbers, FN unpacks the data that’s driving top retail trends in the industry.
The already yearlong trade war between the United States and China continues to drag on, with the Commerce Department reporting today a GDP increase of only 2.1% in Q1 — the weakest gain since the first quarter of 2017 and signaling decelerating growth in the U.S. economy.
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Early this week at the Footwear Distributors and Retailers of America’s 2019 Sourcing and Sustainability Summit, president and CEO Matt Priest led multiple panel discussions with industry leaders to discuss the impact of the tit-for-tat tariff dispute on businesses and consumers.
In its annual Shoe Sourcing Report released this week, the trade group tracked data from the U.S. International Trade Commission and make predictions on shoe production trends between the U.S. and its trading partners.
Here, three countries that are making headlines amid the trade war — and how their relationships with the U.S. are evolving.
China
As the largest footwear producer and consumer in the world, China plays a key role in the global footwear business — representing four out of five pairs of shoes exported by Asian countries, per FDRA data. (In 2018, it was responsible for 9.7 billion pairs of shoe exports.) Further, China takes the top spot in exports of rubber and plastic footwear (79.1% share), textiles (66.3%), waterproof shoes (51.5%) and leather (32.5%). The average export cost, from China to the U.S., is among the lowest in the world at just $4.74 a pair.
But the trade war has already taken a toll on the industry. In 2014, exports peaked at more than $56 billion, but in just four years, that figure had fallen more than 18% — largely due to a drop in the shipments to the U.S., which the FDRA predicts could hit a record low this year. “The declines came as higher coastal land rents and wages, new environmental restrictions, the Sino-U.S. trade war and waning availability of younger, willing workers raised costs for local manufacturers,” the report also noted.
Vietnam
Rising wages and labor shortages have driven supply chains from China to neighboring countries, with insider suggesting Vietnam is a leading beneficiary of the trade war. As America’s second largest foreign supplier, the country accounts for 18.4% of all shoes that arrive in the U.S. — majority of which are athletic footwear. According to the FDRA, U.S. footwear imports from Vietnam climbed to a record high last year, reaching more than 450 million pairs. Still, the average duty rate for exports to the U.S. from the country sit at around 14.3% due to the generally higher levies on athletic versus non-athletic shoes.
However, the country is currently facing the challenge of a limited workforce. Factory capacity is already hovering over 90%, and many manufacturing plants are no longer taking orders from new customers. Additionally, the average landed cost of each pair of shoes is $13.25 — well above the global average of $10.57 as well as China’s $8.09.
Mexico
Mexico has also seen an acceleration in footwear production amid the escalating trade war. Last year, the FDRA predicted that U.S. imports from its southern neighbor were poised to climb at a double-digit rate to a 15-year high. It has since become America’s fifth largest foreign supplier of shoes.
Majority of footwear production in Mexico is concentrated in three regions: Mexico City (12%), Guadalajara (18%) and León (68%) — the latter is where direct-to-consumer brand Thursday Boot Company and fashion footwear brand Steve Madden have parts of their supply chains. “Mexico retains a key competitive position over other suppliers,” read the report, “given its proximity to U.S. customers and its mostly duty-free status for footwear afforded under the NAFTA and under the forthcoming [U.S.-Mexico-Canada Agreement].”
But as shipments have surged, so has the average landed cost: Mexico’s figure is at least twice as high as the global average, hitting $22.35 a pair in 2017, per the FDRA. (The FDRA attributed this to footwear construction, with many of Mexico’s shoe exports made with leather.)
Watch FN’s interview with these top shoe players.
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