by Xiaoyi Wang, MAief ’17
Summary: Nike supports the removal of tariffs on footwear for efficient production and lower costs, but New Balance, the sole American footwear brand that manufactures shoes domestically, argues that signing the TPP will bring unemployment in manufacturing industry. This article analyzes the two company and industry, discusses reasons of the disagreement, and makes comments about the issue.
In the spring of 2015, several events regarding the Trans-Pacific Partnership happened in Oregon, headquarter of Nike. On May 8, President Obama visited Nike headquarters and made a speech to support his decision of signing the TPP. Various protests, like ‘Flush the TPP’, by labor unions have been going on at the same time for job losses in manufacturing and other industries.
Nike VS New Balance
There is another disagreement between two major footwear brands, Nike and New Balance. New Balance, unlike most of its footwear competitors, doesn’t outsource all of its production and offers the unique customized ‘Made in America’ businesses. On the other hand, none of Nike’s 38,000 workers are manufacturing workers. New Balance wants a gradual cut in tariffs to protect its 5 American factories, but Nike supports an immediate cut by signing TPP. Nike has also promised to create 10,000 new jobs if TPP is approved.
New Balance opposes TPP because it will cause manufacturing unemployment, and destroy small Maine towns that hugely depend on footwear factories. Nike, as well as Obama, supports TPP because it well benefit US footwear industry, create high-value jobs, and increase consumer surplus by lowering costs and prices.
Free trade improves production efficiency and optimizes comparative advantages, but in terms of manufacturing and footwear industry, which of the two sides is really defending American economic interest?
Despite the steady growth and dominant position of US footwear industry, manufacturing employment experienced a 40% decrease over the decade, while office and admin support jobs only declined by 25%, and management positions almost remain the same. The rising domestic labor wages and fierce competition from low-cost countries like China and Vietnam account for the dramatic manufacturing employment decline.
Let’s take Vietnam as the outsourcing market for example. Nike estimates that the costs of ‘Made in Vietnam’ shoes are around $20-25, and New Balance estimates that costs are 25-35% higher for ‘Made in America’ shoes. Low labor costs, low labor and environmental standards, and reliance of labor unions on government all contribute to Vietnam competitiveness. While removal of tariff brings more contracts to Vietnam and increases workers’ wages, it is a question whether the increasing demand will worsen the forced labor, child labor, and sweatshop problems in Vietnam.
Thoughts about the Disagreement
Isali Ruiz formed running shoes on a mold at the New Balance manufacturing plant in Lawrence. BOSTON GLOBE/John Tlumacki
This is an interesting start point to look at TPP, from the footwear manufacturing perspective. At first glance, I was opposed to the new policy as it ignores interests of the lower working class, and hurts New Balance, a great company with social responsibility. Also, I thought that it will worsen Vietnam workers as well because managers will force the labors to work extra hours for higher production, and hire more illegal child labors. Some people even fear that TPP will turn those small Maine towns into the next Detroit.
We should look at quantitative aspects behind the issue closely. Though New Balance is the only major footwear brand that hires US manufacturers, only a quarter of its production comes from the States. New Balance also heavily relies on Asian countries, including China, Vietnam, and Indonesia. In terms of wages, New Balance offers workers about $10 per hour, while Vietnamese workers earn less than $1 per hour. Also, part of the TPP agreement requires partner countries to meet certain labor standards. Otherwise, you are out.
According to researches by Peter A. Petri and Peterson Institute, the projection is that US employment will move from sector to sectors, and won’t change in total numbers. Labor forces tend to move from less productive industries to more productive ones. The study also found significant gains to a country and improvements in wages, both in US and in Vietnam.
It is true that some workforces, usually with lower education level and transferable skills, will be negatively impacted by the trade policy. I believe that it is the duty of the government to give work trainings to manufacturing workers, subsidies to factories and local economy that heavily depends on manufacturing, and enough confidence that certain industries will benefit with the country. More official statistics and research should be published to reveal the sweet or bitter truth behind the partnership. Many rumors have been created by labor unions or some parties. The conflict between Nike and New Balance may be a marketing event, who knows. It will take time to see the true influence after the deal, but currently government subsidies, help, and support should be provided.
Aeppel, Timothy. “New Balance Sweats Push To End U.S. Shoe Tariffs”. WSJ. N.p., 2016. Web. 10 Apr. 2016.
“Assessing The Trans-Pacific Partnership, Volume 1: Market Access And Sectoral Issues”. PIIE Briefing (2016): 6-30. Print.
Brodeur, Simon, and Ari Van Assche. “Nike Versus New Balance: Trade Policy In A World Of Global Value Chains”. Harvard Business Review (2014): n. pag. Print.
“Footwear Manufacturing – May 2015 OES Industry-Specific Occupational Employment And Wage Estimates”. Bureau of Labor Statistics. N.p., 2016. Web. 10 Apr. 2016.
“How More Business With Nike Could Affect Workers In Vietnam”. Washington Post. N.p., 2016. Web. 10 Apr. 2016.
“New Balance Wants Its Tariffs. Nike Doesn’t”. Bloomberg.com. N.p., 2012. Web. 10 Apr. 2016.
Petri, Peter A, Michael G Plummer, and Fan Zhai. The Trans-Pacific Partnership And Asia-Pacific Integration. Washington, DC: Peterson Institute for International Economics, 2012. Print.