06 May Column: The importance of TPP to the entire footwear industry — even New Balance
Recently, Boston-based New Balance took a swipe at the Obama administration by announcing its opposition to the Trans-Pacific Partnership (TPP) trade agreement. Interestingly, the company’s change of position is not based on the merits of the TPP, but in retaliation for an entirely unrelated issue: the speed at which the Department of Defense is moving on a possible contract for New Balance to provide footwear for new recruits. Procurement protocol aside, New Balance’s opposition to the TPP is unfortunate, as this is a deal that will greatly benefit the footwear industry as a whole, footwear buyers in the United States, and New Balance as a company.
To understand how, it is important to give a lay of the land. In 2015, footwear consumers and companies paid nearly $3 billion in tariffs, the largest amount in history. These added costs negatively impact the price of shoes for every single American footwear consumer and stifle American job creation. In fact, footwear is hit with duty rates upward of 67.5 percent, while other goods like iPhones and a majority of all consumer products pay little or no tax.
These taxes are holdovers from a protectionist law passed in 1930 and have done little to keep footwear production jobs in the United States. In fact, it may surprise many that New Balance makes more shoes in Vietnam than anywhere else in the world, meaning the company paid a sizable portion of the almost $600 million in duties the U.S. collected on shoes imported from Vietnam in 2015. The TPP would vastly reduce these tariffs for New Balance and many other American footwear companies, saving consumers and companies $450 million the first year of implementation and $6 billion over the first decade.
There is no question that New Balance is a great company. Over the last hundred years, they have built a global footwear brand that consumers from all corners of the world have come to recognize and respect. But behind that brand is something even more impressive – one of the most diverse and innovative supply chains in the industry. New Balance is successful, in part, because of how effectively it leverages its network of international suppliers to bolster its U.S. operations. This is what makes their opposition to TPP so surprising. The 12-nation deal would bring more harmony to the global supplier network that supports so many New Balance workers here in the United States.
Recently, four of the top domestic footwear manufacturers — with factories in Michigan, Oregon, Georgia, and Pennsylvania – sent a letter to the U.S. government stating the TPP would help boost domestic operations. They say the TPP would help them export more shoes to Japan and Asia while providing savings on footwear made abroad to invest back into their plants, helping add more production jobs. This is important to note, since these four companies have the same business model as New Balance, yet come away with a totally different view on the TPP.
As an industry, we wanted a different outcome out of the TPP negotiations. We long advocated for the entire elimination of duties on all footwear on the first day the agreement takes effect. Because of New Balance’s lobbying efforts, seemingly in conflict with its own economic interests, it will take 12 years to fully eliminate the duty on athletic shoes coming from Vietnam. A far cry from the immediate elimination we sought as an industry, but progress nonetheless.
New Balance was at the table during the TPP negotiations and as a result, the Obama administration struck – dare I say — a balance to finalize this vitally important agreement that will lower costs for consumers, increase jobs in our industry, and drive more product innovation in footwear for years to come.
The irony of this entire saga is that at the same time New Balance was announcing its opposition to this important agreement, it also announced the release of its 3D printed shoe — an important and vital advancement for our industry. Unfortunately, that forward-looking announcement by an innovative company was quickly lost in the noise of its own 20th-century rhetoric. So don’t be fooled — this is an important agreement for the entire industry, no matter whose shoes you are walking in.
Matt Priest is the president of the Footwear Distributors and Retailers of America.