Let’s Talk Tariffs
If you live anywhere but under a rock and occasionally glance at newspaper headlines you’re probably familiar with all the tariff talk going on right now. And if you’re like me and try to meticulously plan out your sneaker purchases and manage your personal budget around such purchases, you’re questioning if and how the looming tariffs might affect your future pickups. Politically, you can lean either way on this, but I think no matter what party you affiliate with paying more for sneakers is never a good thing.
What the F*** is a tariff?
For those unfamiliar, a tariff is a tax on imports or exports between sovereign states. Generally, tariffs are used by countries to encourage domestic growth as they force companies to use domestic labor, manufacturing, and goods rather than look elsewhere for competitive prices on these items. Ideally, tariffs level the playing field by essentially making it more or just as costly to do business abroad as it is to do business domestically.
As a further protectionist strategy, many people believe tariffs can help curb unfair economic imbalances between countries, by forcing heavy importers or exporters to renegotiate trade costs and provisions to make imports or exports less one-sided.
What does that mean?
If tariffs sound new and intrusive, they aren’t. If you’re an American like I am, you’ve been paying tariffs your whole life (unless you were born before 1930, shout-out to the 90-year-olds reading). The Smoot-Hawley Tariff Act, which was enacted in 1930, imposed tariffs on over 20,000 imported goods, including clothing and shoes. The current average import tariff on a pair of shoes is about 11 percent, which is roughly about $2.75 for every $25. So, a pair of shoes that cost $40 when it hits the US shores and is marked up by the retailer by about 4 times (industry average is between 3 and 5 times) ends up costing a consumer just under $180 ($177.60 to be exact).
In a comment for a CNBC article in April 2018, Footwear Distributors and Retailers of America CEO, Matt Priest stated that there are 436 ways to classify a shoe when it comes to government tariff codes. Construction materials of the upper and the outer soles can lead to footwear tariffs as high as 67.5%. Believe it or not, that cost is something Americans (and likely other nations) are paying for already.
While the current administration hasn’t really talked about the direct impact to consumers when it comes to increased tariffs, the reality is when tariffs are imposed in the modern global market manufacturers and/or retailers generally impose the increased cost on the consumer rather than taking a smaller percentage in profit. While there may appear to be huge chunks of profit for retailers and manufacturers to pull the increased cost from, the reality is the margins on a pair of shoes is generally about 2% according to industry experts.
Even though clothing and shoes make up less than 6 percent of US imports, about 98% of all footwear sold in the United States is made overseas. While shoe imports from China have steadily decreased and are at a twenty-year low and seems to be the focus of many of the new tariffs, it’s well-worth noting that almost 75% of all imported shoes still come from China.
The New Numbers
So, remember that $180 pair of kicks you bought before the new tariffs? Here’s what it looks like with an added 25% increase to the tariffs. Instead of being about $2.75 for every $25, a 36% tariff would add about $9 to every $25. Rather than paying $177.60 for that pair of shoes that cost the retailer $40, you’re now paying just under $220 ($217.60 to be exact). Now think back on the last shoe you paid $180 for, would you now be willing to fork over an extra $40 to own them?
Conclusion (sort of)
While the outcomes of increased tariffs, notably with our main shoe supplier China, are not definitive, the idea of increased costs for sneakers is never a good proposition. The new tariff battle between countries could take a turn for the better, but in the meantime only time will tell. One thing is for sure, as a sneaker enthusiast close to Boston, Made in the USA New Balance never looked so good.
Written by: David Blackmon