The Trans-Pacific Partnership, a trade pact that could save the footwear industry almost half a billion dollars in import taxes each year, swung from likely passage to uncertainty as critics expressed reservations about its impact on American workers while proponents touted it as a boon to American businesses.
The trade agreement, a major undertaking of the Obama administration, was finally doomed for good, though, when President Trump, in one of his first moves in office, said the United States would withdraw.
The Footwear Distributors and Retailers of America (FDRA) supported TPP. As Vietnam steadily gained ground as the number two supplier of footwear to the U.S. market, the FDRA believed TPP would become the “most commercially significant free trade agreement for footwear to date.”
“Trade agreements, in theory, are helpful to sales and to the supply chain. TPP was an opportunity to economically box out China and solidify our other ties. But right now our trade agreements aren’t with countries where there are many major footwear suppliers,” said FDRA President and CEO Matt Priest.
VAMP spoke with Priest to find out what TPP’s demise means for its members and what the organization expects from the Trump administration.
VAMP: Did the FDRA see the withdraw coming?
Priest: We were optimistic about it. With a Democratic president and a Republican Congress, that’s historically the secret recipe, a perfect storm of opportunity. But the rhetoric of the presidential campaign showed that it was becoming politically more difficult. Now that it’s gone, at least for the time being, our companies are still making sourcing decisions outside of these trade agreements—less than two percent of their volume comes under some kind of trade agreement. With rising costs and labor shortages in China, many were already moving to Vietnam [which the TPP would have fostered] in dramatic fashion.
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VAMP: Which type of companies will be affected the most by the withdrawal?
Priest: When it comes to Vietnam—99 percent of the duty benefit from of the agreement was U.S. imports of Vietnamese made product. A lot of athletic footwear, a number of athletic brands are there, and what we had seen over the past few years is footwear types other than athletic were also migrating. It’s was one of those things—a vast majority of our members are at least somewhat in Vietnam, so for us it’s an equal lost opportunity.
VAMP: What type of feedback are you hearing from shoe brands?
Priest: We represent 80 percent of the footwear industry in the U.S. and we know they’re upset about TPP, so we’ll continue to navigate the way forward when it comes to the future of the footwear industry.
VAMP: What happens now to the investments that have been made in TPP countries? Will FDRA and member brands continue to explore opportunities in these countries?
Priest: This would have been amazing opportunity, but a lot of the investments going on are happening because of a lot of other factors. We have some of the highest duty rates out there—we’ve been living with duties since 1930.
Ultimately a trade agreement becomes gravy, but, without it, you continue to navigate the sourcing waters. What’s interesting about this whole discussion about applying duties is that they are costs ascertained at the border, and most are American companies, so they take on those costs. At the end of the day that cost has gone onto the American consumer, it’s American consumers, really, who pay the tariffs.
It’s also a big problem because it actually prohibits more innovation and more job creation in the U.S. Those jobs it sought to protect in theory have long left—it’s been 30 years. When a factory closes, those anecdotal stories carry the day. But it is a consumer story—the rhetoric around what our tax and trade policy should be ignores the fact that we are the most powerful trading company on the planet. We have a trade deficit because we’re wealthy. Treating us like we’re Norway, or some other country that’s advanced but not as large as we are, doesn’t work.
VAMP: What is next on FDRA’s agenda?
Priest: Our focus is going to be on keeping the administration honest to keep work on bilateral agreements. An agreement with Vietnam makes sense, with Japan makes sense. That’s a big question looming—if it’s the bilateral route, let’s do it. The TPP is actually a series of bilateral agreements woven together. The civil servants at the U.S. Trade Representative’s office have a lot of institutional knowledge. Political leadership sets the tone, but there’s a whole slew of technical discussions that have to take place, and those all happen at the civil servant level. I think we can rely on their experience to drive some of it.
VAMP: Are there any other trade agreements or trade policies that you feel are in question, especially ones that would greatly affect footwear?
Priest: There’s talk about re-negotiating the North American Free Trade Agreement (NAFTA). The rules for trading footwear under NAFTA are some of the most restrictive, and our hope is that if we open the agreement there would be an opportunity. The truth is that TPP was a re-negotiation of NAFTA. It codified labor rules and that agreement, if passed, would have superseded NAFTA because it also applied to Mexico and Canada.
VAMP: Does FDRA anticipate more brands to get behind Made in USA under the Trump administration?
Priest: What’s happening now is that there is some focus on the development of advanced manufacturing here in the U.S. from Nike, Under Armour, Adidas, Reebok and New Balance – but that will involve a limited amount of labor. The majority of Americans buy their shoes at retailers like Walmart, Target or Kohl’s. I understand the desire to drive massive manufacture, like of autos and planes. But trade agreements are not what’s driving the jobs away—it’s efficiency and robotics. We’re serving 325 million consumers here in an affordable way. We’re one of the industries that shows the benefit of globalization.