Steve Madden just drastically changed its business to avoid Trump’s tariffs

CNN —
President-elect Donald Trump has promised steep across-the-board tariffs on imports to the United States, with a particularly significant tax on goods coming from China. One US company, just two days after Trump’s reelection, says it isn’t wasting time getting out of China.
Steve Madden, a $3 billion shoe company, announced Thursday that it would rapidly halve its Chinese production to avoid Trump’s tariffs. Those plans have been in place for a long time, in anticipation of a Trump victory, according to Steve Madden’s CEO Edward Rosenfeld.
“We have been planning for a potential scenario in which we would have to move goods out of China more quickly,” Rosenfeld told Wall Street analysts Thursday. “And so, as of yesterday morning, we are putting that plan into motion. And you should expect to see the percentage of goods that we sourced from China to begin to come down more rapidly going forward.”
Like all footwear companies, the majority – about two-thirds – of Steve Madden’s business relies on goods that are imported to the United States, the company noted. And of those imports, 70% are from China. So that’s a lot of rejiggering to do.
That’s why Rosenfeld said the company worked for many years to get a new network of factories in place that would allow the company to continue to do business without paying that hefty China tariff that Trump has said could be upwards of 60%. That’s larger than the various tariffs on Chinese goods Trump imposed in his first term – and President Joe Biden largely kept in place – that ranged from 30% to 50%.
The point of tariffs, in theory, is to incentivize US manufacturing by making imported goods comparatively more expensive to made-in-the-USA stuff. But here’s the catch: Steve Madden isn’t moving its production to the United States. It said it will be sourcing its goods from Cambodia, Vietnam, Mexico, Brazil and some other countries.
In addition to his extra-steep proposed China tariff, Trump campaigned on tariffs of 10% to 20% on everything that comes into the United States. So Madden may be the first American company to move production out of China because of Trump’s proposals – but it probably won’t be the last. And Americans shouldn’t expect all that production to come back to the United States.
Rosenfeld said Thursday that the company over the next year will reduce the percentage of goods it sources from China to between 40% and 45%.
“If we’re able to achieve that – and we think we have the plan to do it – a year from today, we would be looking at just over a quarter of our business that would be subject to potential tariffs on Chinese goods,” Rosenfeld said.
‘There for a reason’
The retail industry has been crying foul over Trump’s tariffs for quite some time – apparel and shoe companies in particular. The National Retail Federation last week in an analysis found that the price of a $50 pair of sneakers would rise to $59 to $64 under Trump’s tariffs. And Americans would pay as much as $24 billion more for apparel each year because of anticipated increased costs.
Companies that make clothing rely on China’s inexpensive labor costs and incredibly efficient manufacturing capabilities to rapidly deploy workers to make new products for the US market as fashion senses change. If a shoe company bets wrong on a trend, it can be disastrous for business with long-term financial implications.
US labor laws, pay scales – and the fact that America simply doesn’t have as many people as other countries who want to make stuff – means that making shoes in the United States just doesn’t make business sense for most big companies.
On the call with Wall Street analysts Thursday, Loop Capital Markets’ Laura Champine asked Rosenfeld to forecast the financial pain that will be inflicted on the company as it abandons China.
“Obviously, you were there for a reason,” Champine noted.
Rosenfeld said it’s too early to tell because tariffs will have a broad and as-of-yet unquantifiable impact on the globe.
“I think it’s really difficult to quantify the potential impact here,” Rosenfeld said. “And especially if we are contemplating, a new policy where there are significant tariffs on China, that’s going to have all sorts of wide-ranging implications, not only in the supply chain, but the overall economy.”
Trump’s tariffs have been widely rebuked by mainstream economists. Because companies pay the import tariffs and pass them onto consumers, Trump’s proposal is akin to a $3 trillion tax hike, according to Douglas Holtz-Eakin, president of the center-right think tank the American Action Forum. Trump’s tariffs could cost the typical middle-income US household more than $2,600 per year, according to research from Peterson Institute for International Economics.
But Steven Mnuchin, who served as Treasury Secretary for all four years of President-elect Donald Trump’s first term, told CNN’s Jake Tapper Thursday that Trump would be “very careful” not to reignite inflation with tariffs.
“I think President Trump clearly understands the impact of inflation, and I think he’s going to be very careful,” Mnuchin said of Trump’s tariff plans.
Mnuchin also said that in Trump’s first term, tariff exceptions were granted “on things that were going to have an impact on US companies.”
“But we did it very strategically,” Mnuchin added.