Nike Inc. (NKE - Get Report) lead a group of athletic apparel and shoe companies in an effort late Monday to urge President Donald Trump to reconsider placing tariffs on footwear made in China and imported into the United States, calling the levies a "catastrophic" move that will cost U.S. consumers $7 billion a year.
Nike joined Under Armour (UA - Get Report) , Foot Locker (FL - Get Report) , JCPenney (JCP - Get Report) and a host of U.S. footwear and apparel retailers in letter to Trump and senior members of his economic team, including Commerce Secretary Wilbur Ross, Treasury Secretary Steven Mnuchin and economic adviser Larry Kudlow, that called for shoes to be removed from a list of products that could face a 25% tariff over the coming months.
The group said the levy will add $7 billion in additional costs, which will have to be passed onto consumers, and argued they falling "disproportionately" on working class families, who already bear the brunt of rising duties on consumer products.
"There should be no misunderstanding that U.S. consumers pay for tariffs on products that are imported," the letter read. "As an industry that faces a $3 billion duty bill every year, we can assure you that any increase in the cost of importing shoes has a direct impact on the American footwear consumer."
"It is an unavoidable fact that as prices go up at the border due to transportation costs, labor rate increases, or additional duties, the consumer pays more for the product," the letter continued. "This significant tax increase, in the form of tariffs, would impact every type of shoe and every single segment of our society."
Nike shares were marked 0.18% higher in pre-market trading Tuesday, indicating an opening bell price of $83.00 each, but have fallen around 7% over the past month as investors worried the escalating trade war between Washington and Beijing will force Nike to raise prices and cut into its profit margins.
Nike has been attempting to wean itself away from an over-reliance on China factories by switching production to South Asia neighbors such as Vietnam, Indonesia and Cambodia.
But while the group has reduced its manufacturing presence in China from 32% in 2012 to 27% in 2017, it and the other signatories argued further moves will be both costly and time-consuming.
"There have been suggestions that industries should quickly shift sourcing to countries other than China in the wake of these additional tariff threats," the letter stated. "While our industry has been moving away from China for some time now, footwear is a very capital-intensive industry, with years of planning required to make sourcing decisions, and companies cannot simply move factories to adjust to these changes."
Nike may also be concerned about the prospect of reprisal tariffs from China, where it saw revenues grow 24% last quarter, to $1.588 billion, and where it's locked in a battle with European rival Adidas AG ADS for a share of the world's biggest sports apparel market.
China is perhaps the best example of our outsized growth potential internationally. China is already the largest footwear and apparel market in the world, but athletic footwear and apparel represents a smaller share of total than in more developed markets such as the U.S.," Nike CFO Andy Champion told investors following the group's third quarter earnings in March.
"That is why, even amidst current geopolitical dynamics, Nike continues to deliver strong and sustainable growth in China," he added.