This week the Trump-administration in the US has stirred up a lot of uncertainties domestically and internationally with their new wave of proposed tariffs. In this article I go through how this will affect shoe industry, and also straighten out some common misconceptions. In short: American companies selling shoes made abroad will likely need to raise their prices, in some cases a lot, while private individuals buying shoes from abroad will still have no customs if price is below $800 and products aren’t from China or Hong Kong. For now.
First of all, I am by no means an expert on trade or finance. But I’m a journalist, so I know how to do research. That said, I may still have misinterpreted things, found the wrong info or so, should this be the case and you know better, please correct me in the comments section, and I will update the article accordingly. To try to put things as objective as possible, I’ve been going directly to official sources for the hard facts as much as possible, these sources are listed at the bottom.
Article summary
Since the article is long and thorough, here’s a brief summary of each section.
– US adds new tariffs on a majority of the countries in the world, with 10% as baseline up to 54% for China (34% now, added to the 20% tariffs imposed earlier this years).
– US do import more goods than they export. In 2022 export was $2.1 trillion in 2022, while export was at $3.2 trillion. On services, it’s the other way around, for 2023. US imports of services in 2023 were $748, exports $1,027 billion.
– Duties and tariffs are largely relatively balanced between US and most other countries though, the numbers presented by Trump was not showing actual tariffs for other countries.
– For US companies importing shoes, they will have to pay 10-53% in tariffs. This is likely on top of any existing duties, where leather shoes commonly have between 5-12% depending on type. If they are to retain the same margins as today, they will need to raise prices.
– Companies producing shoes in the US will also be affected, since a lot of materials and also machines etc are imported from abroad, and this will become more expensive.
– For companies selling shoes B2B to the US, the tariffs will likely result in lower sales, given the above situation for the American companies importing them.
– For customers in the US buying imported shoes from American companies, they will likely need to pay higher prices, given the above.
– Importantly is to note that the de minimis rule, where D2C imports for American private individuals from companies abroad had no duties or taxes for goods below $800, is a separate thing. For goods from China and Hong Kong, from May 2 this is to be removed, so American customers will need to pay the high tariffs on all products also below $800. For other countries, the de minimis level will remain the same, for now, but administration flags that this can be removed in the future.
– The new tariffs do cause a lot of uncertainty for many players in the shoe industry, it will likely take a while to see where everything lands.
About the new tarifs
So, this Wednesday US president Donald Trump introduced a new wave of tariffs, this time on all products from a majority of the countries in the world. This to a varied degree, but now US will have added new tariffs with minimum 10% (with some exceptions then). To name a few examples, EU countries are to be hit with 20% tariffs, China 34%, Japan 24%, and so on. It also looks like they are to be added on top of existing duties, even if it seem to be a bit unclear still, but for example for China it’s reported that the new ones will for certain be added on top of the one imposed earlier this year, making the total at least 54%.
The base 10% tariffs starts tomorrow April 5 and the country specific new tariffs are set to be imposed on April 9. But, as you likely know by now, things are not set in stone. Similar to how it’s been with the Mexican and Canadian tariffs things can go back and forth at least for parts ot the countries depending on how negotiations go. In cases things could turn into proper trade wars, where things escalate. We’ve for example already seen that China has answered with 34% tariffs on all US goods. The uncertainty will likely be big for a while more. But Trump is a firm believer in tariffs, and has always been, so we can expect that a lot of it will remain. It was the same during his first period, even if things were on a smaller scale back then.
An overview of the US import / export situation
I won’t go too much into the politics, more summarise the overall situation and then focus on the shoe industry. But what one can say is that US import much more goods than they export, that’s a fact. Even if the United States is the 2nd largest goods exporter in the world (behind only China) with exports to the world totaling $2.1 trillion in 2022. Import for the same time is even larger, they are the world’s largest importer, $3.2 trillion in 2022. So net they import about a third more than they export. When it comes to footwear, the export / import balance is even larger. This is for production goods though, on services, it’s mainly the other way around, US export more than they import (that’s the tech sector for you right there). For 2023, US exports of services were $1,027 billion, and US imports of services were $748 billion. So net roughly one fourth more of service export than import.
However it’s not a fact that tariffs are higher on US goods in most other places, they have in most cases been rather levelled. That’s normally how trade under the umbrella of the World Trade Organisation works, that between two parties there are some products where one part have higher tariffs on imports from than the other part on the same products, but then it’s the other way around with other goods.
That’s why the world, and many in the US for that matter, had such a hard time to understand the figures that President Trump showed on those boards he held up during the speech on tariffs. The numbers for the other countries shown were a never before used formula to calculate the net deficit of the goods trade with that country / region, but it had nothing to do with the tariffs those countries are imposing on the US, and this was then compared then to the new tariffs US were introducing. One might certainly wonder why, if the net deficit of goods trade is the issue, why one just don’t present it as that, and state that they believe that tariffs is the best way to change this. Then a lot of discussions on the introduction of the new tariffs wouldn’t be needed.
Okay, that’s an overview of things. On to what we are really supposed to discuss here, how the shoe world, especially those within the quality shoe sector, will be affected.
How it will affect companies importing shoes to the US
In short – a lot. If tariffs stay the way that the initial outlay stated, all businesses who import shoes from abroad (with the few exceptions of countries not having new tariffs imposed) will have to pay an additional 10-53% of duties. Important is to note that this is likely on top of any existing duties, as mentioned above. How the stacking will work can vary a bit though, ad valorem tariffs (based on the product’s value) are generally cumulative, while specific tariffs (based on quantity or weight) may be applied differently, and there can be other rules, hence the uncertainty still. For leather footwear, duties can vary between 0% and 12%, most commonly 5-12% though, depending on type, construction, materials and so on.
For a brand or retailer who sells shoes made in for example Europe, tariffs will go up with 20%, so if we say that the original duty was 8% with the added tariffs it will be 28% in total. This will be on the wholesale price that the shoe brand, or retailer, pays to the factory. So say that a shoe is bought for $150, before they needed to pay an extra $12 to the state. From next week, they will instead need to pay $42 extra.
If we generalise and say that the margin the brand, who sells to customers, or retailer has today is 3 (quality shoes aren’t a high margin product, even if margins are higher in the US than for example in Europe where we also have around 20% VAT while US only has a lower sales tax in some states. You can read more about margins in the quality shoe sector in this article). Then those shoes before cost $158 wholesale plus duties (we skip shipping costs etc. now to make it easy) with a 3 margin would have a RRP of $474. If the company want to retain that same margin rate, which one normally want to do, with the new tariffs the RRP would instead be $576. That’s certainly a much more expensive shoe.
And remember, this example is for EU with 20% added in tariffs, for China it would with the original duty of 8% in this example and both rounds of added tariffs be 62% on the original wholesale price, so if margins were to be kept on a pair at the same cost the new RRP would be $729(!).
Of course the brand or retailer can decide to lower their margins, and for example only add the new tariff sum on the price, which means that they will inevitably make a bit less money, but can be worth it to not lose customers. Maybe they can even try to swallow some of that cost themselves. But to remain a sustainable business, it will certainly be challenging, and most likely a lot of the new costs simply have to be moved over to the customers. For American brands who import shoes but who also sell to retailers, the above sort of apply as well, just that there’s another step in between where they have their margin between the factory price and the wholesale price they offer to the retailers.
On top of this one can add a bunch of more things, like stock plummeting if it’s larger companies (but to be fair quite few quality shoe brands are or have owners that are listed), the fact that if prices increase on a lot of products people will have less money to spend on shoes, and should it become a recession people may start losing their jobs and will not be strong shoe buyers, and so on.
How it will affect companies producing shoes in the US
One might think that American producing shoe companies will go largely unaffected, but if these tariffs remain it won’t be the case. Cause tariffs are added to everything imported from the country that the tariff is directed towards, meaning that if an American factory buys leather from France this will now cost more for them, if they buy rubber soles from Italy it will become pricier, if the machines and spare parts for these are bought from China it will cost a lot more, and so on.
Here the companies might have a higher chance of swallowing increased costs themselves and cut on their margins to not need to raise prices too much, but also domestic US shoe manufacturers will be affected by the new tariffs.
How it will affect companies exporting shoes to the US
Here we only talk about the part where they export to brands a factory make shoes for or to retailers, so B2B, the de minimis limit of no fees for goods below $800 for B2C directly to customers I talk about separately below. To not make things too complicated, one can basically just take the section going through how it will affect companies in importing shoes to the US, and just translate it to how the challenges this may cause for them, will inevitably be moved over to the international company that sells shoes to the American one. So if less shoes are sold of the now likely pricier shoes in the States, less shoes will be purchased from the company that export to the US.
How it will affect customers in the US
Also here most have already been said above, to be honest. But yeah, their shoes will cost more, likely a bit more for domestically produced ones, but then for those who are imported may become significantly pricier. What one can say is that in a way it can be good to buy shoes now, before potential price hikes are brought in place. But also to continue to support the brands and companies that you really like, even if you might need to pay a bit more, it’s at times like these that they really need your support. The de minimis things comes below.
How it will affect customers outside of the US
Of course it’s especially if countries will counter with tariffs that customers elsewhere may be affected. Chinese customers buying American shoes can expect higher prices, for example, given that they have declared 34% tariffs. Similarly other countries can be countering, and in worst cases proper trade wars where responses triggers new responses can lead to a really bad situation, hope we won’t see that.
What happens with the de minimis rule with no duties or tariffs below $800?
Most countries in the world has import duties and in cases tariffs on various products to some degree, from some countries, and on top of that in many cases also taxes. But since it’s a lot of administration to handle customs, it’s common to have a limit where goods below a certain value has no duties, tariffs and sometimes also no taxes. The limit can be different for duties and taxes, and there can be rules like limits for a month or for a year where one still have to pay if one exceed the de minimis limit, and so on.
In 2016, during Barack Obama’s presidency, the US increased the de minimis limit where private individuals could import products duty and tax free from $200 up to $800. This is a very high figure compared to most parts of the world. It has meant that a lot of e-commerce sales from for example Europe and China has been shipping to US customers. For EU, where all countries have VAT of around 20%, this is also deducted for citizens outside the union, so in reality American’s have been able to buy shoes that cost less than $800 to prices lower than Europeans can. Some brands have prohibited VAT deductions sales to the US, to protect their American retailers, but for most this have been possible.
The main thing the high de minimis rules has meant is that a lot of cheaper products from China has been shipped to the US, from sites like Temu and Shein. Chinese import to of goods below $800 has completely exploded in recent years. Also, since these packages are subject to minimal documentation and inspection, there were concerns around counterfeit and unsafe goods, including drugs like Fentanyl. So it came as no surprise when Donald Trump announced in February that they would remove the de minimis limit for all import from China and Hong Kong.
Problem was that no one was prepared for this. US customs and border control became completely overwhelmed, US Postal Service had to stop accepting packages from China and Hong Kong, and so on. So Trump rather quickly paused the changes. But in conjunction with presenting the new tariffs, the White House also announced that they are soon to end the pause, and from May 2 also goods below $800 will be hit with previously existing duties and the new high tariffs of 54%.
But worth noting is that in this announcement of the pause being removed, there was also a section that was tricky to interpret, which essentially concluded that the de minimis rule will also be removed for imports from all other countries as well, when the administration finds it suitable. If this will happen in autumn or in two years, or never, no one really knows.
And to me, to be honest, I can understand the de minimis changes. Living in the EU, in one of the countries with the highest VAT rates, if I bought shoes from the US I would have to pay 25% VAT (always) and if the shoes cost more than €150 also commonly 12% duties. If it’s the other way around, as mentioned above, if an American buy shoes from Sweden they would first be able to deduct the VAT of 25%, and then if priced below $800 they wouldn’t pay anything extra when they were imported. So if one look at this example plainly here, with the $800 duty and tax free rule removed, an American would pay more similar to me for European made shoes. VAT would still be removed, but then between 20-32% would be added in duties and tariffs when imported. It won’t be good for US customers who buy from abroad and not for international businesses shipping directly to customers in the US, but I can understand it.
Given that the US has stood out in having a very high de minimis, and that they would become more levelled with the rest of the world it’s also understandable from this point of view. The new tariffs are certainly harder to grasp for me, but if they remain, I can only hope that the shoe world, especially the sector making high quality ones which I care for so much, will manage these turbulent times and come out well on the other side.
Main sources: The White House, Office of the United States Trade Representative, Bureau of Economic Analysis, Eurostat, Zonos
Thanks for this article Jesper! It’s a jungle to understand all about this, and tbh this has in many ways been the most clear explaining things further than most regular news media articles I’ve read.
It’s interesting, cause one can say that the new tariffs are in general not good for US companies, but the change of the deminimis especially if for all imports will actually benefit US companies. Nothing of it is good for US customers though.
Richard Jones: Cheers! Yeah guess one can summarise it a bit like that indeed.
Hej. Intressant läsning, men lång. Kan du inte förenkla sammanfattningen med en tabell med exempel. Vad kostar några kända märken i olika prisklasser med eller utan tull i olika länder. Före och efter.
Med vänlig hälsning,
Ingemar Albertsson, Vintagemannen
Ingemar Albertsson: Thanks for the input! Didn’t really have time to do a summary when I wrote the article, and am yet to finish the translations to Swedish and Japanese. But I added a summary in the beginning now, but of the sections. Don’t really want to use too much actual brands as examples since it can be sensitive, that’s why few are mentioned, and especially not with concrete numbers since I and no one else, likely not the brands themselves either, really know how they will handle things and what potential price increases that will come.