NEW YORK: American companies from appliance makers to auto parts suppliers have lined up to offer a quiet caution to President-elect Donald Trump as he considers pulling the United States from trade deals: most lost manufacturing jobs aren’t coming back, but higher costs for consumers could.
Consider the sneaker industry, one of the first to move to Asia because of the sharply lower cost of production in China and Vietnam.
Nike Inc and its smaller, privately held rival New Balance Shoes Inc split over the question of whether the United States should back the Trans Pacific Partnership (TPP) trade deal. But if Trump and a Republican-controlled Congress nix that trade deal as expected, both companies and the analysts who track them agree Asia is poised to keep its dominance as the industry’s manufacturing hub.
Companies like Nike have invested too much in those lower-wage economies to consider moving factories, even if tariffs rise and push up costs for American consumers, analysts say. Any new hiring in the United States will be years down the road and depend on refining production technologies like 3-D printing that could make it profitable to hire relatively small numbers of American production staff. The same dynamic applies to other industries, like auto parts, which have moved production to Mexico over the past two decades, executives say.
That suggests a problem that the Trump administration will bump against if it tries to pursue a harder line on trade agreements from NAFTA to TPP. Shoe companies, like other manufacturers, could be forced to pass on higher costs to consumers, but few executives see a serious case for new hiring in the United States because of a change in tariffs on imports.
“The idea of moving shoe manufacturing to advanced countries is a little bit of a farce,” says Ed Van Wezel the CEO of Hi-tech International Holdings BV, an Amsterdam-based shoemaker that sells about 30 percent of its shoes in the U.S.
The U.S. imports about 98 percent of its footwear — 2.5 billion pairs last year, or nearly eight pair for every man, woman and child. Shoemaking went offshore decades ago, mainly to China, because the process is so labor intensive. Making a single pair of running shoes can require up to 80 production steps.
The average shoe worker in Vietnam earns about $245 a month, while shoe tariffs can range from zero up to 48 percent, according the U.S. International Trade Commission. The average is just over 13 percent.
“The ones that stand to lose out here are consumers, because if we start to eliminate trade deals, they’ll be paying a lot more for shoes,” says Matt Priest, president of the Footwear Distributors and Retailers of America, which represents the industry in Washington.
The same dynamic is seen in other industries. Ford Motor Co (F.N) CEO Mark Fields said last week that big tariffs on cars and trucks imported from Mexico would hurt the auto industry and the U.S. economy. But he remained committed to making small cars in Mexico because the profits on making those cars in the U.S. are so low.
Taking the other side of the trade
New Balance, based in Boston, makes only about a quarter of the shoes it sells in the U.S. at its five New England factories, and figures that costs 25 percent to 35 percent more than it would to make them in Asia.
The private company, owned by former marathoner Jim Davis and his wife Anne, says it makes up for that cost disadvantage in part by producing higher-end and customized shoes in those U.S. plants. If the company were publicly traded, it would likely face pressure from shareholders to move all its production abroad.
Beaverton, Oregon-based Nike imports nearly all its shoes, and fought for the Trans Pacific Partnership, a trade deal that became a lightning rod in the recent presidential campaign. Nike said last year that it would create 10,000 manufacturing and engineering jobs in the U.S. if the deal were adopted. Nike has clarified that those jobs would largely be aimed at creating more automated factories, not old-style production that would employ thousands of assemblers.
New Balance fought the TPP, arguing that it would jeopardize its U.S. plants by giving competitors like Nike more profits they could pour into developing new machines, products and advertising.
Numerous commentators seized on his remarks as a support of Trump, and a few shoppers smoldered their shoes. Backfire flared again after a neo-Nazi site broadcasted New Balance the "official shoes of white individuals."
The organization said the first remarks were just intended to mirror its restriction to the TPP, not bolster for Trump.
"For us, this is and dependably has been about the creation and maintenance of assembling occupations in support of our five New England production lines," the organization said in an announcement.
Swinging to robots, not individuals
Past the excitement, shoemakers are exploring different avenues regarding approaches to remove human work from assembling their merchandise, wherever they are made.
Reebok, the Canton, Massachusetts-based shoe organization now possessed by Germany's Adidas AG, is building a lab in Rhode Island to refine a procedure to make shoes with fluid plastic.
"We're taking a gander at the whole procedure of shoe making from end to end with a spotless sheet," says Bill McInnis, who heads up the program to build up the organization's assembling procedure.
Cynics like Hi-tech's Ed Van Wezel accentuate that the business' propelled mechanization endeavors are still years from having the capacity to deliver entire shoes everywhere scale and at low costs. He says in any event for the present, a hefty portion of the materials used to make shoes will keep on coming from Asia since that is the place providers are bunched.
"Now, what you have is the thing that we call 'lick and stick,' assembling uppers and outsoles imported from Asia," Van Wezel said. "It's as much about an advertising story — that you're creating near the market."
Matt Powell, an expert who takes after the shoe and different games enterprises for NPD Group, a statistical surveying bunch, said the fundamental issue with the new innovations is that Americans like shabby shoes and request them in gigantic amounts.
"The main procedure of scale today is Nike's Flyknit," he said. "They've made 1 million of those. However, recall that they sold 400 million shoes a year ago. So it's still small."