Trump’s Tariff Blow Has Footwear Firms Pondering Cost Structure
Following U.S. President Donald J. Trump’s launch of a global trade war, one thing is certain for fashion and footwear companies: prices are going up and profits are going down.
But just how high will prices go, and what the percentage decline in profits could be for 2025 and perhaps going into 2026, remains subject to debate.
Trump’s reciprocal tariffs of 50 percent of the duties other countries levy on U.S. exports, with a 10 percent minimum, also raise some unknowns.
While it appeared initially that the new percentages — such as 34 percent for China and 46 percent for Vietnam — disclosed on Wednesday were the new total percents in duties, there are indications that these are in addition to the existing tariffs in place.
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UBS economist Jonathan Pingle said that based on White House communications in the media, that would mean China’s tariff would be 54 percent. And if the weighted average of the proposed tariffs on U.S. imports is between 23 percent and 25 percent, Pingle says a “back-of-envelope calculations” suggest a permanent implementation of the full set of proposed tariffs would translate into inflation rising 5 percent as prices adjust to the higher costs of imports.
That will continue to hurt consumer discretionary spending, which was already impacted by inflationary pressures before the new tariffs were announced.
According to American Apparel & Footwear Association president and CEO Steve Lamar, the “average tariff on clothes, shoes and accessories, necessities every American must buy, was already more than five times higher than on other U.S. imports” before the new duties were announced.
He also said the new tariff plan overlooks the destructive impact it will have on U.S. manufacturers, noting that “American companies depend on foreign inputs which have no, or very few, American substitutes. Tariffs will significantly increase the cost of manufacturing in the U.S., and, when paired with the retaliatory tariffs that will surely come, will undermine U.S. export opportunities as well.”
BMO equity analyst Simeon Siegel said Thursday that “uncertainty remains” because it’s not yet clear if the new tariffs are intended as the final offer or represent an ongoing negotiating tactic.
“It’s clear this is far from a China-centric discussion and in the current form, companies that worked hard over the years to reduce reliance on China by leaning into countries like Vietnam just learned there really isn’t a place to hide that isn’t the U.S.” Siegel said. “It feels both late and still too early to quantify company-level impacts with any degree of confidence at this point [with] uncertainty still the dominating pressure point.”
And while tariffs could go lower due to concessions, they could go higher too. Goldman Sachs’ chief economist and head of global investment research Jan Hatzius noted that while negotiations with trading partners could lead to lower “reciprocal” rates, the prospect exists for escalation following retaliatory tariffs, as well as a high probability of further sectoral tariffs.
Hatzius said that most Asian trading partners face a higher tariff than expected. He also saw the reciprocal tariff placed on China as additive to the China-focused tariffs already imposed in February and March.
The Footwear Distributors and Retailers of America (FDRA) CEO Matt Priest told Footwear News on Thursday that the new Vietnam tariff is additive as well.
“The number one concern is cost, cost, cost,” he said of the top three queries that footwear firms were asking during a morning call he hosted with over 600 industry participants. “A pair of sneakers out of Vietnam used to be 20 percent duty. It’s going to be 66 percent duty. Men’s or women’s leather shoes out of China used to be a 10 percent duty—that’s now 71 percent duty. These are just untenable from a costing and profitability perspective,” he said.
According to Priest, the new duties also raise another concern among the footwear firms: “The question for some of our members is ‘How do we stay in business? How do we stay profitable in this kind of environment?'”
The FDRA CEO said some governments had been proactively engaging with the Trump administration even before the new tariffs were disclosed. He cited the government of Vietnam and India as example, noting that they are trying to work with Trump.
For Vietnam, which has a high proportion of performance athletic footwear production, Priest sees the discussions as a positive. “They’ve been proactive and they haven’t announced retaliation. They’ve come in and offered up tangible concessions out of the gate. They came in with a collaborative spirit,” he said.
As for possible ways to mitigate the increase, Priest said the industry could see a degradation of the materials and components or features — so that even though there is a higher duty rate, the lower overall cost reported at the border will translate to a reduction in the amount of duty paid in dollar terms.
Among the European footwear manufacturers, which will see a comparably lower duty rate than what’s been assessed to their Asian production counterpart, Priest said the luxury sector will be somewhat insulated due to its higher-end customer base and rate structure. “In general, leather upper shoes from Italy have a lower tariff rate than plastic shoes from China,” he said.
Mike Babbitt, head of trade and supply chain finance at Synovus Bank, said high-end luxury footwear won’t suffer as much “because being more expensive and exclusive is exactly what makes them attractive.” (Still, the luxury market has shown noticeable signs of a slowdown in recent quarters.)
Unlike luxury, lower-end product lines will become noticeably more expensive than they were before. He said the big headache for footwear firms will be figuring out “how much of the increased costs they can pass to the end consumer without pricing themselves out of the market.”
Sheng Lu, a professor and director of graduate studies in the department of fashion and apparel studies at the University of Delaware, said that for footwear firms, a rough estimate using 2024 import data as the base would see the reciprocal tariff increasing the average U.S. import duty rate from 12.2 percent last year to around 35.1 percent.
“If the value of U.S. footwear imports in 2025 remains the same as in 2024, the reciprocal tariff would result in $9.6 billion in tariff duties on footwear, an additional $6.3 billion from the current level,” the professor said.
But Lu raised a number of questions that, for now, have no answers: “How long will the tariff last? How will U.S. trading partners respond and retaliate? How will the reciprocal tariff affect the U.S. economy, inflation, and consumers’ demand for footwear? Will U.S. fashion companies cancel sourcing orders? Will the World Trade Organization step in?”
The only thing fashion and footwear firms can do for now is “continue to navigate a highly turbulent business environment, keep their sourcing and supply chain flexible, and monitor the ripple effect of the reciprocal tariff,” Lu said.
That’s not an easy task. “Announcing sweeping tariffs with little lead time introduces immediate uncertainty. Companies are now under the gun to understand how new rates will impact costs across sourcing, production, transportation, and pricing. And many simply aren’t built to adapt overnight,” according to David Warrick, executive vice president at software-based supply-chain visibility firm Overhaul and a former Microsoft supply chain veteran.
Thursday’s wrinkle to Trump’s tariff backdrop is a new bipartisan legislation — Trade Review Act of 2025— introduced by Senators Chuck Grassley (R-Iowa) and Maria Cantwell (D-Wash.) that would require Congressional approval of most new import tariffs.
The proposal, which would amend the Trade Act of 1974, allows the president to implement and negotiate new trade agreements, would also require the president to provide a reason for “imposing or increasing the duty” and an assessment of the potential impact on U.S. businesses and consumers.
“Congress is vested by the Constitution with the power to levy taxes and it should play an integral role in deciding what tariffs are imposed to protect American industry and families. Tariffs are taxes and have the potential to hit family budgets hard by pushing up prices on clothes, school supplies, food and other household goods. By one estimate, the tariffs announced [Wednesday] will cost the average American family a staggering $2,100,” Blake Harden, vice president, international trade, at the Retail Industry Leader Association, said.
U.S. production not an option
Trying to shift footwear production to the U.S. is a not an option.
According to Julia Klyashtorny, president of Apparel Solutions, which also owns the plus-size retailer Ashley Steward, which last year introduced footwear to its assortment mix: “We started negotiating with our China and Vietnam suppliers months ago, in anticipation of implementation of tariffs. Even though for fashion products, like apparel and accessories, we have shifted significant volume of manufacturing to the U.S. and near-shored to Latin America and Canada post-COVID in 2021 and onwards, footwear presents a challenge as there is no reliable manufacturing base in the US that can compete with pricing in China.
“Overseas manufacturers are actively negotiating discounts on existing and future orders, as they understand that U.S. importers cannot fully absorb the increase in costs due to tariffs,” Klyashtorny said. “Ultimately, we here at Apparel Solutions have been creatively re-designing and repricing the footwear offerings, where we can still attract the end consumer with fashion-forward designs and good value, as product and quality will always win.”
“We see no realistic possibility that clothing and footwear production will return the United States in any meaningful way,” said Morningstar senior equity analyst David Swartz.
He pointed out that apparel firms have invested “vast amounts of capital and time in building their supply chains,” and there is no way to rebuild them domestically at a reasonable cost in terms of both money and time. Swartz also noted that wage rates and other costs are far higher in the U.S. than in Asia and Latin America, leaving little incentive to invest in U.S. production for a tariff policy that “will likely be short-term in nature.”
Which firms analysts say can navigate the new tariff rates
TD Cowen analyst John Kernan sees the U.S. softlines retail ecosystem as being hard-hit by the tariffs, mostly because it relies on low-cost labor in Asia. He said a 45 percent tariff could be offset in some cases through “realized high-single-digit to low-double-digit price increases and factories eating 25 percent to 33 percent of the tariff cost.”
Kernan cited Amer Sports, Deckers Outdoor Corp., On Holding AG, Adidas, Ralph Lauren and Lululemon as the brands in his coverage group that would be most able to use pricing, mitigation and international sales mix to alleviate tariff earnings risk.
Jefferies’ analyst Randal J. Konik believes Birkenstock Holding PLC and Nike Inc. are two footwear brands with pricing power at retail, otherwise known as consumer demand, that would allow them to pass on some costs to protect their margins. Birkenstock has high full price sell-throughs, he said, noting that Nike can compete on price over the longer term and gain market share as a result.
Noting that the duration of the new tariffs are uncertain, “with Trump indicating they will remain in effect until he determines the trade deficit [and/or] underlying nonreciprocal treatment is satisfied,” Morgan Stanley’s equity analyst Alex Straton said companies such as Amer Sports, Levi Strauss & Co., Nike and Tapestry Inc. are “potentially best positioned.”
Overall, she said that with the introduction of new tariffs and negative go-forward demand, some companies could disclose fiscal year guidance cuts in the next earnings season. Many footwear firms will disclose first quarter earnings reports starting in May.
