FDRA: ROO to Exclude Chinese Inputs Need Phase-In
Footwear Distributors and Retailers of America CEO Matt Priest said shoe importers expect to pay $5 billion in tariffs this year, up from $3 billion last year, given the additional 30% tariffs on Chinese shoes, 20% on Vietnamese shoes, and 19% on Indonesian shoes. Last month, shoe importers owed $635 million in tariffs, up 108% from the month before.
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The vast majority of shoes are imported, nearly 2.5 billion pairs of shoes annually, Priest said on a press call Sept. 15.
"Those increases will drive prices higher for consumers," Priest said, with women's shoes already starting to get more expensive. The Chinese tariffs have been higher for months, but the Vietnamese and Indonesian tariffs will apply only to shoes arriving next month, as long as they qualify for "on the water" transition time.
In response to a question from International Trade Today, Priest said that if Vietnamese and Indonesian trade deals ultimately have highly stringent rules of origin to allow shoes to qualify as coming from those countries, manufacturers will be more likely to just return to China. Priest is worried the U.S. might require 80% non-Chinese content to avoid a China-origin designation, a number he said is unreasonable. However, he said no one in the administration used that number in his conversations on the issue.
Priest said brands have been diversifying out of China since 2010.
Footwear Unlimited CEO Pat Mooney said that if an 80% value content rule is established, "It’s the least expensive footwear, non-leather footwear, that’s going to be hurt."
He said leather can be imported from South America or Europe, and it will represent enough of the value that the shoes will be able to have Vietnamese or Indonesian origin.
"Whereas on man-made shoes, a lot of those materials are coming from China," he said.
Priest said he has told the administration that a value content that limited Chinese inputs to 30% to 50% of the product is doable, but it "would still take some time for some companies to get to that number."
"We’re trying to help them to think about the long game," he said.
Mooney agreed. "Phase-in is critical with all policy changes, because it takes time to get infrastructure into place" to source materials in a new country.
Mooney said that before this year, the tariff level on the shoes he sources in Asia was close to 10%. "Now, all of a sudden, that’s closer to 25 or 30%," he said. "And they’re changing so fast. You really don’t know what your cost of goods is going to be."
Mooney said his company sources shoes and boots from Mexico, India and China, and he can't figure out how to price the shoes to retailers.
Mooney said there's been no impact on Mexican products, where his most expensive products are made.
In China, "You’ve got 35% price increases," with the customers who are most likely to cut back, he said.
He said that factory partners are taking some of the hit, his company eats some, he expects retailers may eat some, and the price will go up some. But, he said, for the companies across the supply chain accepting lower margins, "they're doing that for the time being. Nobody can do that forever."
Priest said FDRA members are pleased that the Supreme Court will consider the tariff case soon, and said he hopes it will be decided before the end of the year.
"We have no idea which way it will break," he added, and even if the tariffs are ruled unconstitutional, he said his members have "no illusion we’ll definitely get refunds; it could be more nuanced."
He said he also expects the administration to hike tariffs with other tools in that case, but he hopes consumer goods will be spared.
Priest said that if the emergency tariffs are refunded as a result of a Supreme Court decision that the president overreached his authority, at mass retailers like Walmart or Target, "you might actually see prices go down because margins will be restored."
Priest said he is grateful that when the president was asked if he's trying to restore manufacturing of T-shirts and shoes through his tariffs, he said he wasn't. However, he said, policy has not followed that philosophy.
Priest said that almost 15 years ago, FDRA tried to convince Congress to lower the MFN tariffs on some shoes, and the Affordable Footwear Act garnered more than 200 sponsors in the House (see 11080411).
But, he said, "Lower MFN duties, it just doesn't seem like that’s the environment we’re in."