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Footwear Import Costs Set to Rise as Volume Falls: FDRA

Between tariffs and a highly transmittable virus, the new decade’s first year has sent footwear imports into a tailspin, and things are expected to worsen before they improve.

“We’ve seen that the volume of shipments is down dramatically so far in 2020 and is all but certain to plunge before the year is said and done,” Gary Raines, chief economist of the Footwear Distributors and Retailers of America (FDRA), said Monday during the organization’s Global Shoe Sourcing Digital Series. “The writing is on the wall that we’re going to see a substantial decline not only in the value but in the volume of shipments as well.”

What’s more, the plummet prompted by retail store closures and dampened demand amid the worst days of the pandemic is expected to have an adverse impact on import costs for shoes, too.

Though footwear imports from the United States’ key sourcing countries have seen a “sharp double-digit decline,” according to Raines, the amount of duties paid per pair is down only moderately, evidence of the surge in duties in recent months.

Made-in-China footwear got hit with an additional 7.5 percent tariff in List 4A of the U.S.-China trade-war-fueled punitive duties (brought down in February from what was initially a 15 percent additional duty), which FDRA president and CEO Matt Priest said Tuesday, “covered about half of our imports from China.”

“The China trade war has increased our tariffs for footwear by $1 billion, so we’re going from about $3 billion paid U.S. dollars a year up to about $3.9–$4 billion, which is a huge jump,” he said.

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As a result, while duties per pair from the rest of the world remained essentially flat, duties per pair on footwear from China “absolutely skyrocketed to well over 60 percent…in the latest month it was up some 32 percent year over year from May 2020 to May 2019,” Raines said.

The imbalance, he added, is set to send costs rising.

“With the volume declining faster than the duties are set to decline, that implies that the average duties per pair are set to increase substantially…suggesting that we’re likely to see a higher average import cost going on this year,” Raines said. “So far, year to date, we’re seeing that retail footwear prices are actually lower—you can blame that on the decline in demand because of the fallout from Covid—but when you see that widening divergence, really that is the largest divergence we’ve seen between those two lines in well over two decades of tracing.”

It’s a divergence that doesn’t bode well for business in the coming year.

“I think it implies tighter and tighter margins for retailers and importers as they’re seeing average import cost rise but the average selling price continue to fall,” Raines said. “That’s not a recipe for long-term viability at all.”

While some have been holding out hope that a November election that ousts the incumbent may mean a roll back on tariffs, the scenario may be an unlikely one.

“When you add duties on something, it is so hard to call those back,” Priest said, drawing reference to the so-called “Chicken Tax” of 1964, which added a 25 percent tariff to foreign imports of light trucks (read: vans, pickups, SUVs) in response to tariffs France and West Germany levied on U.S. chicken imports. Fifty-six years later, the tariff is still in effect.

“No matter who wins, the duties will continue to be in place for some time…Even if Biden wants to heal our relationships around the world diplomatically,” Priest added, “I don’t see that as being eliminating duties on day one on products coming from China.”