Vietnam Trade Deal Sparks A Running Battle On Shoe Tariffs

BEN LUC, Vietnam (The Dallas Morning News MCT) —

This is where many of Nike’s Deep Fusion running shoes are born. When a pair of them reaches the end of the assembly line at the huge Taiwanese-owned factory here, the cost of production is about $20 to $25. At malls across the United States, the retail price ranges from $59.99 to $107.

About $3 of that reflects a tariff on U.S. imports of athletic footwear.

Vietnam wants to eliminate the 8 percent to 15 percent tariff as part of a free-trade negotiation with the United States and nine other Pacific nations. U.S. Trade Representative Ron Kirk leads those negotiations for President Barack Obama, and he got Vietnam’s perspective on the tariffs when he went to Hanoi in August.

More engagingly, the tariff is the center of a dispute between Nike and New Balance, two U.S. firms that are exchanging blows and waving flags over whether it still makes sense for Americans to manufacture running shoes.

Both companies get more of their shoes made in Vietnam than anywhere else. But Boston-based New Balance Athletic Shoes Inc. is the last company left making some of its mass-market running shoes in the United States. The privately owned firm had $2.04 billion in revenue last year and employs 1,350 workers at five factories in Massachusetts and Maine.

“Vietnam is the fastest-growing producer of footwear in the world, second only to China in total production,” said New Balance spokesman Matt LeBretton. “The way we look at it, Vietnam is already winning in footwear… They don’t need it. [Reduction of tariffs]”

Nike Inc., with annual revenue of $24.1 billion, is the biggest athletic shoe maker in the world. Virtually all of those shoes are made overseas for the Beaverton, Ore.-based company. Company officials say cutting the tariff on Vietnamese-made shoes would allow Nike to cover higher raw materials costs and invest more in maintaining competitiveness.

Kirk, the former mayor of Dallas, went to a New Balance plant in Maine in September. He has listened to Nike’s arguments as well.

“We have two, interestingly enough, iconic names in the sports world who happen to be not of the same position,” he said. “So we’re trying to meet with all the parties.

“Under this president, it’s my job to care about those (New Balance) jobs and see if we can strike the balance. Those 1,300 jobs may not be much in a big city with 5 million people, but in a state like Maine, that’s a big deal,” he said.

Americans buy 2.2 billion pairs of shoes a year – about seven pairs each, according to the American Apparel & Footwear Association. This $66.1 billion retail market relies overwhelmingly on foreign manufacturers. Importers, meanwhile, are paying $1.9 billion a year in tariffs to bring those shoes into the United States.

“As 99 percent of sports shoes sold in the U.S. are imported, it is clear there is no correlation between high duties on footwear and the creation of a U.S. manufacturing industry,” argued Greg Rossiter, a Nike spokesman. “Given that there is no connection between high duties and U.S. jobs, the question is why high duties should be maintained at a high cost to U.S. consumers and businesses.”

Making shoes is labor-intensive, and Vietnam has plenty of low-cost labor.

At the Ching Luh Group factory in Ben Luc, 24,000 Vietnamese make roughly 20 million pairs of shoes a year for Nike. They are paid between $150 and $200 a month, factory officials said.

On the factory floor, women stamp and polish pieces of synthetic leather, plastic and mesh fabric, then pass those along to other women who sew them together. These become the neon green, navy, gray or white shoe uppers, which are shaped on the line in heaters. Grinders shave away stray bits.

The assembly line merges with another carrying white, pink and black rubber soles. Tops and bottoms are glued and heated, then passed before women who slip in sole inserts. Quality control inspectors have a look. Shoes that pass inspection are filled and wrapped with brown paper, then dropped in red-orange and white boxes.

The shoes and shoe boxes are the only signs of Nike’s trademark “swoosh.” The factory has almost no signs identifying what goes on behind its guarded gates.

A building housing some of the assembly lines is clean, well-lit and spacious. The work is steady but does not seem rushed. Workers are paid by the month rather than by how many shoes they make, and they can take breaks when needed by signaling a supervisor. Nike wouldn’t allow photographs of the work because of what its spokesmen called competitive reasons.

“Literally dozens of pairs of hands touch each shoe, with some footwear having over 100 pieces,” Rossiter said.

New Balance spokesman LeBretton said his company’s workers outperform the Vietnamese. New Balance makes 6 million to 7 million pairs of shoes a year with its 1,350 U.S. workers, while Nike produces 20 million a year with 24,000 workers in Ben Loc.

New Balance says it also stays competitive by taking less profit out of every pair of shoes it makes. (In its most recent quarterly report, Nike reported a gross margin of 42.8 percent.)

“Profitability is a wonderful thing, but it’s not always our No. 1 motivator,” LeBretton said. “When everybody else made the decision to move overseas, we redoubled our efforts at home.”

If the tariffs are removed, New Balance executives have warned that they might close the New England factories.

What makes this perplexing, LeBretton admits, is that New Balance would benefit from eliminating the Vietnamese tariffs because it sources more of its shoes from there than anywhere else.

Vietnam has more than 700 of its own shoe manufacturers, which fret that they don’t have the access to cheap capital enjoyed by the global firms.

Vietnam exported $2 billion of shoes to the United States last year.

The tariffs on less-expensive leather and canvas shoes mean more to them in their competition with China, which dominates the U.S. shoe market, than do the running shoe tariffs that are so important to Nike and New Balance.

Kirk has told Congress that the Trans-Pacific Partnership trade deal means more to the United States than access to “cheap T-shirts and tennis shoes.”

“This is a huge opportunity,” he said. “First of all, it will enable Vietnam to achieve its own goals for transforming its economy while at the same time it becomes a huge potential market for us.”

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