Shoe Production Set for Cross-Border Trek as China’s Labor Costs Rise

Shoe Production Set for Cross-Border Trek as China’s Labor Costs Rise

The US footwear market is heavily dependent on Chinese sourcing; as of 2018, the country accounted for 53% of all footwear imports. While this makes China the largest provider of footwear to the US, China’s market share has been falling from a 2010 peak of 76%.

China’s Outsized Role in Shoe Manufacturing Leaves Big Shoes to Fill

This decline is occurring due to a couple of factors; for example, wages paid to laborers in China have greatly increased over the decade. Factory wages have tripled since 2008. In addition, the Chinese government has enforced environmental and labor laws more stringently, which has hampered cost advantage to some extent. As a result, production of shoes in China is becoming less economical compared to other low-cost Asian manufacturers.

Production Shifts to Other East Asian Nations

Most of the manufacturing leaving China isn’t going very far. Production in neighboring countries, such as Vietnam and Indonesia, is rapidly increasing. For instance, Vietnam supplied 7.9% of US footwear imports in 2010, but 24% in 2018. Imports from Vietnam surged at an average annual growth rate of 17% from 2010 to 2018, compared to a 2.0% annual decline for Chinese footwear imports over that period. Lower wages in these countries are attracting business, especially for less technically demanding manufacturing like shoes. Cambodia is also another destination; for example, Steve Madden (a manufacturer of footwear and handbags) announced it was preparing to move production there from China.

The US has also seen a modest uptick in shoe manufacturing. For example, Adidas began production at its Speedfactory in Georgia in 2018 and intends to produce 500,000 shoes per year out of the factory.

Tariffs Set to Accelerate Shift

Footwear importers have faced tariffs over the entire historical period. Currently, tariffs on footwear average 11%, though they may reach as high as 67%. In May 2019, the US government announced its intention to impose 25% tariffs on approximately $300 billion worth of Chinese goods, which includes shoes imported from China. A public hearing occurred in June 2019, though implementation of the tariffs is on hold pending the outcome of a new round of trade discussions between the US and China.

Companies could simply pack up and leave China entirely. Others may continue to assemble shoe parts in China but assemble the final product in a different country to avoid the tariffs. Finally, others may keep Chinese production facilities open to satisfy Chinese demand, while making shoes for export to the US in other countries.

Whether the tariffs are implemented or not, the increasing expense of producing in China will prod manufacturers to reconfigure their supply chains. Vietnam and Indonesia will likely see manufacturing gains due to lower labor costs. Mexico is also expected to benefit as manufacturers nearshore footwear production to speed their products’ time to market. Regardless, the ongoing uncertainty and any further potential tariffs will continue to incentivize manufacturers to move production of US-destined goods away from China.

Want to Learn More?

We have you covered! For additional information and analysis of US industry trends, see Footwear: United States, a report published by the Freedonia Focus Reports Division of The Freedonia Group. This report forecasts to 2023 US footwear demand and shipments in nominal US dollars at the manufacturer level. Total demand is segmented by type and upper material in terms of:

  • non-athletic
    • leather
    • textile
    • rubber and plastic
    • other materials, such as disposable shoes
  • athletic
    • textile
    • leather
    • rubber and plastic

To illustrate historical trends, total demand, total shipments, the various segments, and trade are provided in annual series from 2008 to 2018.

Ice skates, roller skates, toy footwear, and orthopedic extension footwear are excluded from the scope of this report.

While you’re there, check out some of our related reports, which include:

About the Author

Owen Stuart is a Market Research Analyst with Freedonia Focus Reports. He conducts research and writes a variety of Focus Reports, and his experience as an analyst covers multiple industries