Trade

New Balance Wants Its Tariffs. Nike Doesn't


New Balance's 2011 revenue

New Balance's 2011 revenue

For Brady Chapman, the answer to jump-starting the economy is simple: back the companies that manufacture in America. Chapman and his wife own the Snack Shack, a two-room restaurant in Skowhegan, a town of 8,500 set amid the maple and pine trees of central Maine along a road locals call Moose Alley. New Balance Athletic Shoe, the last major manufacturer of athletic footwear in the U.S., is the largest employer in the area, where one factory after another has closed due to competition from imports.

New Balance workers often stop by Snack Shack, especially on payday, for chicken tenders and clam strips. Like many in the town, Chapman worries New Balance’s U.S. factories will be put out of business by the proposed elimination of footwear tariffs under a free-trade deal, dubbed the Trans-Pacific Partnership, that President Barack Obama is negotiating with eight Pacific nations, including shoemaking colossus Vietnam. “If somehow these tariffs were not there, and you bring in all these imports, there’s no way they can compete,” says Chapman. “It would be devastating.”

Nike's 2011 revenueNike's 2011 revenue

A continent away in Beaverton, Ore., sporting goods behemoth Nike (NKE) is pushing for elimination of the duties, pledging to create thousands of high-paying U.S. jobs, from designers to product engineers. Nike draws support from business groups and home-state lawmakers who say greater access to the Vietnamese market will provide opportunities for U.S. engineering, architecture, and financial-services companies.

“The question comes down to, is one kind of job more important than another?” says Erin Dobson, a Nike spokeswoman. “What are the jobs for the 21st century? They’re not necessarily jobs that existed 30 years ago.”

The debate shows how tricky trade issues are for Obama, who says he wants to reward companies that manufacture in the U.S. and at the same time craft a comprehensive free-trade agreement. “Nobody should pretend that this is easy,” says Shaun Donnelly, a vice president of investment and financial services with the U.S. Council for International Business.

The Footwear Distributors and Retailers of America, which wants an end to the trade barriers, says tariffs for some types of shoes can run as high as 67.5 percent, and when the costs get passed on, they effectively triple the price of foreign-made shoes. New Balance, based in Boston, says the duties that help sustain its U.S. athletic footwear production are as high as 20 percent and asks that they be preserved.

The 7 million pairs of shoes New Balance produces each year in the U.S. make up only a quarter of U.S. sales, says Matthew LeBretton, director of public affairs. The rest are made in the U.K., China, Indonesia, and Vietnam. “If this is purely a business decision, then it’s very clear that you make more profit by making shoes in Asia than in the United States,” LeBretton says. “We aren’t purists, but we are doing this for reasons that are other than financial impact. It’s the right thing for us to do. We suffer as a country when we lose the ability to manufacture.” He adds that producing in the U.S. lets New Balance react faster to demand from U.S. stores and helps those stores maintain lower inventory. The company also says local workers maintain better quality control than workers abroad.

Keeping the tariffs is important because most of New Balance’s jobs are in communities where there are few other options for employment, says Senator Olympia Snowe (R-Me.). “They’re paying 46¢ an hour in Vietnam, and New Balance is paying $10 an hour here, plus all the benefits,” Snowe says. “It’s not a level playing field. Our government has to finally wake up and understand that.”

Nike has supporters, too. “I really believe that the government should not negotiate agreements for one company,” says Matt Priest, president of the footwear distributors association. Representative Earl Blumenauer (D-Ore.), whose district is home to Nike employees and the U.S. headquarters of Adidas (ADS:GR), says keeping the tariffs taxes millions of consumers to keep a few thousand jobs.

Trade talks will continue this month. Maine lawmakers are applying pressure on the administration to keep cuts in athletic footwear tariffs out of any final agreement. The U.S. hasn’t made any decision, says Carol Guthrie, a spokeswoman for Ron Kirk, the U.S. Trade Representative, in an e-mail. “Footwear is an area of interest for Vietnam and remains a sensitive item for the U.S.,” Guthrie says. “The challenge we will face is how to address this product, and we continue to consult with Congress and stakeholders on how to do so.”

The bottom line: New Balance says it may be forced to give up manufacturing in the U.S. if a proposed trade deal ends most tariffs on footwear.

Martin is a reporter for Bloomberg News in Mexico City.

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Companies Mentioned

  • NKE
    (NIKE Inc)
    • $96.83 USD
    • 0.54
    • 0.56%
  • ADS:GR
    (adidas AG)
    • $56.64 EUR
    • -0.35
    • -0.61%
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