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The Sneaker Industry and the Desirability of the TPP

Following the election, the new president elect has promised a lot of changes ranging from taxes to foreign policy, that drastically differ from prior policies. One of his more senior positions is removing the US from trade deals in hopes of bringing back manufacturing jobs. One interesting development is the reactions by the sneaker industry in response to Trump’s position on the Trans Pacific Partnership trade deal.

Take Nike and New Balance for example. Nike is a massive athletic-wear public company that imports almost all of its shoes. On the other hand, we have New Balance, a company that makes about ¼ of all of its shoes in the US, the rest also being outsourced. Nike supports the TPP because of how much it has already invested on factories in those Asian economies, whereas New Balance is weary because it would give its competitors (such as Nike) more profits. Now let’s assume that the TPP will be scrapped and assume that it has an unknown desirability for Nike and New Balance. If the TPP is passed, it is entirely exogenous for Nike. Regardless what Nike decides to do, they will be hit hard because they already have such a large investment within these countries. They can either a.) move everything back to the USA and incur massive and redundant capital expenditures and also play the higher wages within the states or b.) take massive hits to their profits by paying the tariffs that would result. In each case, the scrapping of the TPP is inherently bad for Nike.

On the other hand, let’s assume that the TPP will not be scrapped as an alternative with all other conditions the same. New Balance is not quite in the same situation that Nike was previously in because the desirability of the TPP for New Balance really depends on what Nike and its competitors do. For a smaller company, they are worried that with the TPP, its competitors will all suddenly flock to Asia and take advantage of greater profits then they would. While this is the most likely course of action for their competitors, theoretically if New Balance’s competitors don’t use their new profits to advancing their brand through new machines etc. (perhaps due to some consumer changes in preferences), then New Balance would not have such a low desirability for the TPP. In fact, ¾ of their business would profit as well from the passing.

 

Source: https://www.businessoffashion.com/articles/news-analysis/sneakers-show-limits-of-trade-policy-in-reviving-jobs-for-trump

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