Nike to re-structure supply chain in face of tariff threats

By John Manners-Bell

In its latest results, sportswear manufacturer, Nike, has revealed that it plans to flex its supply chain to mitigate the impact of potential tariffs on its imports of goods into the USA from China. The company has warned that the tariffs could add an additional $1 billion of costs to its operations, forcing it to raise prices. Moving production to other parts of the world will play an important role in its strategy to reduce its cost base.

In a statement to investors, Matthew Friend, Executive Vice President & Chief Financial Officer, said, ‘Currently, China represents roughly 16% of the footwear we import into the United States, and we expect this to reduce to the high-single digit range by the end of Fiscal 26, with supply from China re-allocated to other countries around the world.’

It is unclear which countries will benefit from the reallocation strategy but Vietnam is likely to be a major contender for Nike’s additional production needs. Reportedly, the market already provides half of the company’s footwear needs and a third of apparel and Nike is believed to employ 450,000 workers across 130 factories in the country. However, Vietnam is itself facing tariffs in excess of levels which were to be levied on China, in which case such a move would hardly make sense. There is a chance that, if no trade deal is agreed, tariffs on Vietnamese goods could rise to as high as 46% in July 2025.

Vietnam’s position is complicated by the belief held in Washington that it acts as a transhipment point for Chinese goods to the USA, allowing American importers to avoid existing tariffs implemented during the first Trump administration.

The chances of high tariffs on Vietnam’s imports would suggest that Nike may be looking at other options in Asia such as Philippines (potentially 17%) or Indonesia (32%); near-shoring suppliers to Mexico (within the USMCA free trade area); or reshoring to the USA. The latter is obviously the result which President Trump is looking for, but unrealistic given the cost of employment.

Automation may also play a role in factory location. In the late 2010s, Nike collaborated with Flex to develop a factory in Guadalajara, Mexico using robots. Employing a smaller labour force than an equivalent factory in Asia, it would have revolutionised its cost base. However, at the time, the robots were not advanced enough to produce trainers due to the range and type of textiles and materials involved. Ironically, humans are more adaptable and flexible than machines when it comes to small production runs, a factor which has become essential to remaining competitive in the sportswear sector. This remains a key challenge: how robots can be set up and flexed quickly to produce small batches rather than long runs of standardised and mass-produced goods.

Devising a supply chain strategy at the moment could be characterised as trying to hit a moving target, given that tariff rates are likely to change violently over the coming months and years. Friend also commented, ‘Over the past fifty years Nike has built a globally expansive supply chain that is responsive and resilient, we have strong relationships with our factory partners, and our leadership team is experienced in managing through disruption.’ Its supply chain will need all these attributes if it is to cope with the uncertainty which presently pervades the economic and geo-political environment.

Author: John Manners-Bell

Source: Ti Insight

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