You might have wondered why your boots have a super-thin fabric that wears off after a few days. If it was made by Columbia Sportswear, the reason is a tariff.
This is the story.
Through teams of trade and design experts, Columbia deals with hefty tariffs on shoes and clothing. Basically, they need to identify the tax and then design around it. They know that a water resistant jacket has a lower tariff than one that is not. It also was cheaper to import jackets that were at least 10% down.
As for footwear, there are approximately 436 ways to classify imported shoes. So, the trick is to select the design that is hit with the lowest import tax. Shoes with fabric soles have a 12.5% tax while rubber soles are in the 37.5% category. The message? Obscure the rubber sole with fabric that self-destructs.
On a larger scale, the factory itself is a consideration when tariffs multiply. Founded 80 years ago, initially Columbia did all in the U.S. However, when labor elsewhere became cheaper, and the U.S. operation became more expensive, they moved manufacturing abroad. Now, as a $2.5 billion multinational firm, they have the luxury of designing their winter wear in Oregon. Then though, depending on the talent and cost, they can fabricate anywhere.
Further displaying an ongoing exodus from China, this graph from Quartz shows the timing of Adidas’ 2012 switch to Vietnam:
When Columbia’s CEO was asked if new tariffs could bring manufacturing back to the U.S., he said, “There is no way. Zero. None.” The cost would be prohibitively high and we no longer have the expertise.”
Our Bottom Line: Comparative Advantage
And that returns us to comparative advantage. All about who sacrifices the least, comparative advantage was first expressed by economist David Ricardo (1772-1823) during the early 1800s. Its basic premise is that each nation should specialize in what it sacrifices the least for. That means that if making hiking boots would require the U.S. to use less land, labor, and capital for precision equipment, it should make the equipment and leave the boots to countries like Vietnam that have the comparative advantage for footwear. (My U.S. sacrifice is hypothetical but you get what I mean.)
Economists usually oppose tariffs because they constrain comparative advantage…
And create perverse incentives like rubber soles covered by fragile fabric.
My sources and more: Thanks to the NY Times for its closer look at how Columbia Sportswear copes with tariffs. Then, for the perfect complements, CNBC talked about existing tariffs while Quartz focused on others that left China.