Maine’s congressional representatives have toured New Balance’s three Maine factories for years, warning that a trade agreement that eliminates U.S. tariffs on athletic footwear could lead to job losses at some of the last U.S. factories that produce athletic shoes.
As legislation that would give the Barack Obama administration the authority to negotiate trade agreements with limited congressional input hangs in the balance in the Senate, New Balance’s much larger rival, Nike, is pledging to create up to 10,000 manufacturing and engineering jobs in the U.S. if the trade pact goes through.
How could the same trade agreement, the 12-nation Trans-Pacific Partnership, endanger domestic manufacturing jobs with one footwear producer and lead to more with the other? In short, Nike wants the Trans-Pacific Partnership, but it doesn’t really need it in order to restart U.S. manufacturing. And if it restarts U.S. manufacturing, it will be because it makes good business sense.
It’s been 30 years since Nike last assembled athletic shoes in the U.S. Its last outpost was a factory in Saco that it shuttered in 1985. Today, Nike’s manufacturing footprint spans 693 factories in 42 countries that employ more than 1 million workers.
It retains some U.S. manufacturing, but China, Indonesia and, increasingly, Vietnam are home to the bulk of the company’s athletic footwear production. Meanwhile, Boston-based New Balance continues to operate five New England factories employing 1,350 people — its Maine facilities are in Norway, Norridgewock and Skowhegan — while holding together a New England-based supply chain for its shoes’ components.
U.S.-made shoes account for about a quarter of New Balance’s U.S. sales, said Matt LeBretton, the company’s vice president of public affairs. The rest are produced overseas, including in Vietnam, though LeBretton said New Balance is trying to make more of its shoes onshore — especially in anticipation of the Pentagon enforcing a “buy American” athletic shoe requirement for service members.
“If making shoes in the United States today was a really profitable exercise, then we wouldn’t be the only shoe company to do it,” LeBretton said. “If you’re looking at it solely from a dollars and cents perspective, that’s not the only reason why we do it.”
While athletic footwear production in the U.S. has nearly disappeared, the U.S. has kept in place tariffs on footwear imports that ostensibly protected domestic manufacturing. Those tariffs are worth 5-30 percent of the cost, insurance and freight value of every Vietnamese-made pair of shoes the U.S. imports, with the average about 13 percent. The Trans-Pacific Partnership — whose precise details are still secret — would lower or eliminate them.
U.S. companies and customers paid $2.7 billion in shoe tariffs last year, according to the Footwear Distributors and Retailers of America. But since the likes of China and Indonesia aren’t part of the Trans-Pacific Partnership, only about $460 million would be wiped out or cut as a result of the trade deal. Nike says it would reinvest the savings in advanced and customized manufacturing in the U.S. (it also could choose to redirect the savings to price reductions), though it has the financial capacity to make that change without the tariff relief: Its 2014 profits were $2.7 billion on $28 billion in revenue.
More than cutting into U.S. shoe manufacturing (or adding to it), the likeliest effect of the trade deal would be to shift more athletic shoe production to Vietnam from elsewhere in the world, according to a 2013 impact study commissioned by the Footwear Distributors group. The result would be continued growth for Vietnam, which already accounted for a quarter of a key category of U.S. footwear imports last year, up from 15.8 percent in 2009. China’s share, during that same period, fell to 59.7 percent from 73 percent, according to the U.S. Office of Textiles and Apparel.
LeBretton said Trans-Pacific Partnership’s tariff elimination or reduction could make New Balance’s domestically made shoes less price-competitive with rivals’ (while also offering the company some relief on the Vietnamese-made shoes it imports), but that would happen only if other shoe manufacturers use tariff reductions to cut prices.
Either way, LeBretton said, the company is focused on growing domestic production.
“Between growth, staying where we are today, or shutting down factories, if those are the three alternatives, we’re going to choose growth,” he said.
