How much do you think it costs to make a pair of Nike shoes in Asia?

https://twitter.com/dieworkwear/status/1909741170953273353

by taubek • 1 year ago

697 963 1 year ago

twitter.com

sharemywin• 1 year ago

bottom line there's very actual margin for the companies to play with on tariffs.

SV_BubbleTime4• 1 year ago

Best to avoid the tariffs then? Is there a reason that Nike can not make shoes in the US?

goatlover2• 1 year ago

They will be more expensive to make in the US and will likely sell less shoes as a result. This will be the case for most things that are cheaper to make overseas. Or with things that are difficult to grow here at scale.

Clubber7• 1 year ago

The second thing we see is that Asian manufacturing in Asia produces US jobs. You go to Footlocker to buy a pair of $100 shoes because you can afford them. This creates jobs for the Footlocker employees, Nike designers, marketing teams, and other US people throughout this chain.

In all fairness, most of those jobs would still exist if manufacturing was brought onshore. The fact that they were manufactured in Asia makes no difference here, except for perhaps the longshoremen that was included in "other US people."

ravelantunes• 1 year ago

The author’s point is that the lower cost of goods coming from Asia results in increased demand, which then generates more jobs in the post-manufacturing part of the chain.

xienze4• 1 year ago

That completely discounts the strategic value of self-sufficiency. I mean, why not outsource ALL manufacturing and agriculture if someone else can do it cheaper? Surely that wouldn't come back to bite us, right?

Clubber7• 1 year ago

I see your point. I suppose a counterpoint is now shoes won't be so disposable and professions for cobblers and the like will be in higher demand.

4ndrewl• 1 year ago

Incorrect. The price of manufacturing, because of the cost of living differences, would result in a far more expensive product.

Free-trade brings into being products that previously would not have existed (Nike trainers for the masses).

jasonlotito• 1 year ago

In all fairness, most of those jobs would still exist if manufacturing was brought onshore.

Yes, if you waved a magic wand.

But considering bringing manufacturing onshore to replace Asian manufacturing will take at best years if not decades, no, those jobs will not still exist.

doctorpangloss5• 1 year ago

The reason you’re buying Nike and not GLRMNTXH brand knockoffs manufactured in the same factory and half the cost is because of stuff the US employees are doing.

arbitrary_name• 1 year ago

If those shoes cost $200 because of higher labor costs, then a lot less people are buying them. They will buy worse imports at $180. The consumer loses.

onlyrealcuzzo2• 1 year ago

The point is - there isn't a market for $400 crappy basketball shoes.

There is a market for $120 ones...

JSR_FDED• 1 year ago

It’s like people excited about the new datacenter being built in their town, think of all the jobs that will bring they cry. Nobody realizes it takes 6 people to run a datacenter.

Bringing “manufacturing back to the US” is a fool’s errand. The future of manufacturing is automation, not jobs.

netsharc2• 1 year ago

I saw a video today on Instagram (from Tiktok), AI generated of course, where rows and rows of people sit at sewing machines sewing shirts, but instead of the typical Asians one commonly expects to see, they're all overweight American-looking people...

tekla• 1 year ago

Apparently China propaganda making fun of the US.

yostrovs• 1 year ago

https://x.com/damengchen/status/1909288019750011006?t=kO7hvU...

thrill• 1 year ago

Sometimes the darkest humor is the most accurate.

xienze4• 1 year ago

I think you're missing that the bigger value is having the manufacturing on your home soil instead of depending on being in the good graces of China.

vidarh4• 1 year ago

Forcing China to become more independent of exports to the US also means China will care less about being in the good graces of the US. It cuts both ways.

hello_moto2• 1 year ago

If US doesn’t need X, X will try hard to avoid US (who’s bullying everyone right now).

Eventually US will be in isolation.

lm28469• 1 year ago

That goes against like 50 years of global trade policies but ok...

itishappy• 1 year ago

Strategic shoe manufacturing?

kjkjadksj4• 1 year ago

You always depend on someones good graces. What difference does it make if they are an american you are dependent on or a chinese person? Still a human at the end of the day. Its the political leaders that want you to say that an apple and an apple are different species. It doesn’t reflect the reality that we are all equivocal humans on earth. The sooner we get out of our nation state well of stability as a species, the sooner we advance technologically to the next level as a species.

bitshiftfaced• 1 year ago

Isn't that an even more compelling reason to do it, since unemployment is already low? It means more vertical integration, more domestic investment and productive capital.

wegfawefgawefg3• 1 year ago

i think a lot of people are fixating on the market.

I will share a metaphor you can spread.

I run a mile every morning not because it is the most calorie efficient way to get around, nor because it is the most monetarily productive use of my time, but because it keeps my legs strong and me healthy.

vidarh4• 1 year ago

Indeed, US manufacturing has a higher output now than before outsourcing took off. But it employs far fewer people per inflation adjusted dollar of output. Because the manufacturing that stayed was largely the manufacturing that was so cost-effective to automate that not even third world labor could compete.

piva00• 1 year ago

Just to add to your point: what stayed was either cost-effective to automate or had so much value added that the labour component is quite low (like jet engines).

jacknews4• 1 year ago

i don't understand the obsession with jobs anyway

people don't want a job, they want money and purpose

most jobs barely deliver either

explodes• 1 year ago

Human society has been optimizing for the wrong thing since 20,000BC.

To that end, the future I want doesn't focus so much on money, but on needs. Letting a market dictate "needs" is clearly not working for the betterment of humanity a whole. While it helps with progress, I believe there is an upper limit when human behavior is brought into the equation.

bpt310• 1 year ago

Can you propose something better that provides money and purpose?

Keep in mind that most people are unwilling and unable to sustainably maintain self-employment.

palmotea2• 1 year ago

i don't understand the obsession with jobs anyway
people don't want a job, they want money and purpose

And society will not give them any of that without a job.

There, now you should understand "the obsession with jobs."

most jobs barely deliver either

And no job delivers even less.

Ray202• 1 year ago

I don't understand your comment. People don't need money, people need food to eat, houses to live in, and so on. And the thing about all this food and houses is that Jesus doesn't produce them, other people produce them.

And since producing all this is not such an easy task, the people who produce the food and build the houses want something in return. That's what we call jobs.

So when you say that jobs is not needed - you mean that there is no need to live in houses or that there is no need to give the people who build the houses anything in return?

9999000009992• 1 year ago

They'll start forcing us to make Nikes in prison.

Even then the quality wouldn't be up to par. Since we've collectively agreed we don't need to have due process anymore, I guess I can look forward to making shoes will I'm being indefinitely detained.

danaris2• 1 year ago

But even that is impossible in the near-to-medium term.

The US just doesn't have the supply chain that China does. You need to be able to source the materials, and they have, effectively, entire cities dedicated almost wholly to producing those "intermediate" raw materials—eg, things like the grommets for the shoelaces, the big sheets of faux leather that can be cut to the right size & shape to make the body, etc. They also have the industrial capacity to do the molding for the soles, and produce the laces, at scale.

None of that exists here—in some cases not in the scale required, but in most cases not at all.

With across-the-board tariffs, the only way to fully avoid them is to start from the raw materials on up—mine and purify the minerals, raise the animals for their leather, pump and refine the oil for the plastics, harvest the trees for their rubber (are we still getting rubber that way...?). All here in the US.

Some of those raw materials likely don't even exist on our land in sufficient quantities to supply all our industrial needs, even setting aside how much time, money, and manpower it would take to set up the mines (and ranches, and oil fields, and rubber farms), the several stages of refining, and all the different ways the materials need to be shaped or alloyed or combined or extruded or or or...

And where is the money to fund all that going to come from? Clearly not the federal government (unless, I suppose, you posit that it's one or more of Musk's companies doing all this—I suppose that could be one of the aims here; just give Musk a monopoly over literally everything we make...). Every domestic company is going to be cutting back six ways from Sunday, because every product is going to cost massively more, so even the people still making as much money as they were last year are going to be buying less. And many people will be making less, either because of those same cutbacks (through layoff or hour/wage reduction), or because they were part of the federal agencies getting wantonly gutted for no good purpose, or among the companies that did business with them and now have lost a major customer.

Bringing manufacturing onshore for any significant percentage of our consumer or industrial goods is barely even a pipe dream. It's pure cloud-cuckoo-land fantasy.

ForOldHack7• 1 year ago

Of course! That would save them even more money! Prisoners make $0.33 to $0.45. I saw a McDonald's sign during an uprising that said "Prison Labor = Slavery"

rayiner8• 1 year ago

Bringing “manufacturing back to the US” is a fool’s errand. The future of manufacturing is automation, not jobs.

That’s probably correct. But the current trajectory means that China will have the robot-operated factories, not the US. What do you anticipate the US will do to obtain goods from those Chinese factories? Especially when AI stands poised to obsolete a lot of the white collar jobs where the US still retains a competitive edge?

You can’t treat the reserve dollar as something that will perpetually defy physics. The pound used to be the world’s reserve currency not too long ago. There’s no reason for the world to continue flocking to dollars when other economies surpass the US.

_DeadFred_• 1 year ago

'The dollar might be weakened in the future so we must immediately blow it and our entire deeply thought out, researched, and supported policy since the 1940s up to now with no plan all based on a book the President read and hope things work out better than what might have happened sometime in the future (but that there were no signs was happening soon)'.

ibeff• 1 year ago

China will have the robot-operated factories, not the US. What do you anticipate the US will do to obtain goods from those Chinese factories?

Why not let the market take care of it? It's cheaper to buy things from China then make them yourself. When that changes, production will naturally move to the next best place. I don't see the issue.

fach• 1 year ago

What's comical is the US commerce secretary literally says this out loud:

https://www.youtube.com/watch?v=nsyyGHuPR88

snarf21• 1 year ago

I agree and if people want an example of this that isn't about a "what if ..." future, they need only look at Detroit. While we still manufacture cars in the US, the auto industry will continue to automate any jobs that they can.

SV_BubbleTime4• 1 year ago

Better than the three towns in my area that all gave away land, tax breaks, county paid power infrastructure to… coin miners.

All three districts fell for “thousands of tech jobs”… turned out to be a couple dozen of people they brought in.

kingraoul• 1 year ago

Still, the value chain is what drives innovation. We should cheer efforts to clothe and feed ourselves that don’t rely on near slave labour sweatshops.

chrisco2554• 1 year ago

Tesla's factories have a ton of automation, but the factory here in Austin employs 22K+ people. Automation will no doubt increase, but that just means the value humans provide is higher level and managing, maintaining, and redesigning the assembly lines as market demands and product categories shift. Datacenters are nothing like factories.

Meanwhile, if it ever gets to the point that automation has truly replaced humans, why not have the machines here at home? There's no good argument against it and plenty of arguments for it.

philipwhiuk3• 1 year ago

There's no good argument against it

"I don't need 1000 pairs of shoes"

bluedino3• 1 year ago

The real jobs are in building the datacenter and the people involved with the software that runs on the datacenters computers

Suppafly4• 1 year ago

I'm not even sure why most people want to bring manufacturing back to the US. If this was a video game with a tech tree, becoming a mostly service and consumer economy would be the final winning position. Bombing our economy to go backwards to being a manufacturing economy is only attractive if you want to turn the middle class back into serfs.

9rx8• 1 year ago

I'm not even sure why most people want to bring manufacturing back to the US.

I am not sure why they think it left. The US manufactures far more today than it ever did in the past. The people were largely relieved by robots, granted.

becoming a mostly service and consumer economy would be the final winning position.

Service isn't always fun. A lot of people don't like selling Big Macs. They are under the impression that if they could have a manufacturing job, they would enjoy work more. That is what drives it.

What they don't realize is that they could already have a manufacturing job. Manufacturers struggle to hire. But the problem there is that, per BLS, 70% of manufacturing happens in rural areas – whereas most people never look for work outside of the city they live in. Thus they conclude that manufacturing doesn't exist. Out of sight, out of mind.

greatgib• 1 year ago

All around the "developed world", the shop/retailer/supermarket/distribution part of the price of a product is around 50%. Whatever the product or its price.

I'm wondering if part of our issue with crazy inflated prices despite low margin for industry and manufacturing actors is not because of this abused margin for retailers. That have also a huge power as it is difficult to negotiate when you depend on your product to be buyable in the market.

To me, that explain a big difference with asian world, where you notice, even for asian shops in western countries that prices are still quite cheap.

Something parallel to that that I have noticed is that decades ago we were used to buy from small individual shops, but now a few retailers and chains have almost a monopoly on the market.

I see the same pattern for movie theaters. They used to be independent mostly with affordable prices. Now 2 or 3 big chains bought them all, and it is very rare to still encounter independent movie theater. And once they got a good monopoly, ticket prices skyrocketed to insane levels.

netsharc2• 1 year ago

Isn't what you're describing the effect of hedge funds moving into everything in order to "maximize returns"?

bryanlarsen3• 1 year ago

retailer part of the price of a product is around 50%

Not according to the article. The retail price is $100 for a shoe they buy from the manufacturer for $50, but $24 of that $100 is "discounts". Therefore the average price sold at is $76, making the retail part of the price 1/3.

potato37328422• 1 year ago

While retail gross margins are not atypically on the order of 100% (less for more expensive goods, much more for cheaper ones) actual net margins are typically single digits. It costs money to retail goods.

DoneWithAllThat• 1 year ago

You’re essentially just claiming price gouging without saying as much because otherwise the economies of scale would not exist (which anyone with any knowledge of how the economy works knows does in fact exist). “Smaller number of larger players with greater buying leverage as well as lower marginal costs leads to higher prices for consumers” is just using a lot of words to say “evil corporations are price gouging”, which is not true.

vel0city• 1 year ago

I see the same pattern for movie theaters. They used to be independent mostly with affordable prices.

Movie theaters used to be extremely integrated with the movie studios. You had to go to a Paramount movie theater to see a Paramount movie. Antitrust laws broke that up until just recently Sony bought Alamo Drafthouse.

But that said, there's still a lot of different brands of movie theaters around me. On top of the normal Cinemark and AMC there's also Alamo Drafthouse, Studio Movie Grill, B&B, Angelika, and several other single-location theaters.

toast0• 1 year ago

If you look at the retailer margin on an individual product, it looks pretty big. But if you look at their overall financial report, their overall margins aren't anywhere close to that.

There's a lot of cost to running a retailer. If it was so easy to avoid the costs and the margins, you'd see more brands going direct to consumer exclusively, but most brands do a little direct to consumer and most of their sales through retailers.

Movie theater economics basically suck and have gotten worse over time. The projectors are very expensive, the pricing to show a film is bad, so ticket and consession prices go up and people stop showing up. Big chains have more negotiating power for film terms and equipment, which can help them survive. Sometimes the independents band together for group purchases, but I think that doesn't always happen.

pjc508• 1 year ago

A lot of that retailer margin goes into (a) wages, i.e. the jobs that everyone is supposedly trying to create, and (b) rent.

Gothmog692• 1 year ago

I think part of the bet of tariffs is that people will be less likely to go to physical stores moving forard anyways

megaman821• 1 year ago

For me this glosses over on why would see the same 100% markup on the customs duties as they rise. A 100% at a low tariff rate is just pricing in the increased paperwork and accounting, but at a super-high tarrif rate this become pretty unjustifiable. Why is not more likely customs becomes mostly a passthrough cost?

Cerium• 1 year ago

It is a passthrough cost because of the business models. In this example the importer (Nike) is paying the cost, and then retailers are buying the product from them at a price that includes the tariff. The retailers don't care why the shoe is $75 or $50. A retailer is concerned that there are customers willing to pay a price which enables them to make a profit. For most retail businesses that price needs to be about 2x cost of goods.

Until you get to extremely high-end goods this multiplier system works fairly well to accommodate the various costs the business has. It is an assumption that there are many business costs that scale linearly with sale price. In reality not all do, but there are many: insurance, return costs, loss, and customer service expectations all scale with dollar values.

Edit: if we switched from an import tariff to a foreign goods sales tax we could avoid this particular problem.

SoftTalker5• 1 year ago

if we switched from an import tariff to a foreign goods sales tax we could avoid this particular problem.

How are these materially different in terms of what the end consumer pays?

TheJoeMan• 1 year ago

I think the shoe graphic after the $75 cost is disingenuous to be still shown as $100 base instead of $150 base. This would show that this basic "100% markup" is just scalping. Expenses and overhead would not double so it's just more in the profit bucket.

SoftTalker5• 1 year ago

If your inventory now costs you $25 more per unit, your carrying costs are higher.

rayiner8• 1 year ago

Americans need to get over their view of “Asia” as being about making shoes. When I was working in engineering in the early aughts, we mocked the Chinese as being able only to copy American technology. Today, China is competitive with or ahead of America in key technology areas, including nuclear power, AI, EVs, and batteries.

We need to anticipate a future where China is equal to America on a per capita basis, but four times bigger. Is that a world where “Designed by Apple in California, Made in China” still makes sense? What will be America’s competitive edge in that scenario?

What seems most likely to me in the future is that the US will find itself in the same position the UK is in now. Dominating finance and services won’t mean anything when both the IP and the physical products are being produced somewhere else.

bpt310• 1 year ago

Their population is declining, and they are a long way away from parity with the west on a per-capita basis. I think China missed their opportunity.

Also, the UK hasn't dominated finance for a century and has never been dominant in services, so it doesn't seem like an apt comparison.

bryanlarsen3• 1 year ago

Their population is declining

Not where it matters. China has a much larger under-employed population base than the US has. They still have a few hundred million peasant farmers whose children can and are getting educated and moving to the city. Their pool of labour is growing while the US's is stagnant.

Not that it needs to grow -- over the last decade or so China's factory employment has been relatively constant while output has surged dramatically. Their factories are rapidly automating.

ttoinou• 1 year ago

But look at per capita per purchasing power

vlovich1232• 1 year ago

I think China missed their opportunity.

I think so too prior to the Trump tarrifs. Now their influence abroad is picking up steam again, with former WW2 enemies now becoming trade allies. I think this has reinvigorated their opportunity.

throwacct• 1 year ago

This 100x. This is the time to go all in and truly shake everything from the ground up. If the US moves at least 25% to the continent, it could solve lots of issues by developing manufacturing for critical products in-house and nearshoring the rest to LATAM, helping reduce illegal immigration considerably. Win-win for the whole continent.

lossolo2• 1 year ago

The first effects of their population decline will be felt around 2050 by UN estimations. What do you think they’ll be doing for the next 30 years? Considering they already ship more robots than the rest of the world combined, I don't think that will be a huge problem.

Sonnigeszeug2• 1 year ago

'declining' on which level?

China will surpass USA from a GDP Point of view in 2035.

China surpassed Germany as industry machines export in 2018.

engineer_22• 1 year ago

We can afford to be lazy, the chinese have their own problems.

Word for that, hubris

kolanos• 1 year ago

Their population is declining, ...

This can not be overstated. China is on the verge of the largest population collapse in human history.

By 2080 China's population will drop by 600 million. If that trend continues, by 2150 China's population will drop to 280 million.

Other asian countries such as South Korea and Japan are on a similar trajectory.

tim3334• 1 year ago

The UK may not have dominated finance for a while but we had headlines like:

"London Beats New York as the World’s Leading Financial Center in the Latest Ranking"

in 2015 before the glory that is Brexit.

https://www.bloomberg.com/news/articles/2015-09-28/london-be...

pjc508• 1 year ago

US will find itself in the same position the UK is in now

The thing is .. there's a point here, but it's not at all tied in with physical products. People are obsessed with one side of the ledger while refusing to see the other. Most of the stuff the UK is struggling with (transport, healthcare, energy) are "state capacity" issues. Things where the state is unavoidably involved and having better, more decisive leadership and not getting bogged down in consultations, would make a big difference.

The UK stepped on its own rake because it was obsessed with tiny, already vanished industries like fishing. Fishing is less profitable for the whole UK than Warhammer. It's not actually where we want to be. While real UK manufacture successes (cars, aircraft, satellites, generators, all sorts of high-tech stuff) get completely ignored. Or bogged down in extra export red tape thanks to Brexit.

To improve reality, we have to start from reality, not whatever vision of the past propaganda "news" channels are blathering about.

sitkack2• 1 year ago

we have to start from reality, not whatever vision of the past propaganda "news" channels are blathering about

Ha ha ha. I was this naive once. This just isn't our reality. You would have to have a functioning education system AND a population with adequate emotional regulation. Do we even have the pieces anymore?

myrmidon5• 1 year ago

Fishing is less profitable for the whole UK than Warhammer.

This sounded completely insane to me. I tried to look up numbers and found that Games Workshop brings in > 0.5 billion in revenue (!!), compared to all of UKs fisheries at 1 billion-ish (profit margins are, as you'd expect, pretty favorable for the plastic figurines that they don' even paint for you).

Thanks for this interesting fact.

wahern• 1 year ago

Fishing is less profitable for the whole UK than Warhammer.

There are 3x as many fishermen in the UK than employees of Games Workshop, and much more again if you count the number of related fishery jobs.

At the end of the day, politicians and voters alike respond more to employment than nominal monetary figures. A broader employment base is generally better for social and political stability than explicit wealth redistribution (e.g. tax + entitlements). The latter is what economic theory tends to emphasize--i.e. equivocate incomes based on state wealth redistribution schemes--but such economic theory is how we got Trump, Brexit, and a host of other ills. Economics hasn't figured out, yet, how to price the constituent inputs that produce political and economic stability. GDP, Gini, per capita income, employment rate, etc metrics are gross approximations that work well until they don't (though they're still better than rhetoric and handwaving). But to be fair, social and political theorists haven't solved that problem, either; at least, not with a rigorous quantification model.

throw0101c2• 1 year ago

[…] are "state capacity" issues. Things where the state is unavoidably involved and having better, more decisive leadership and not getting bogged down in consultations, would make a big difference.

See "America needs a bigger, better bureaucracy":

I believe that the U.S. suffers from a distinct lack of state capacity. We’ve outsourced many of our core government functions to nonprofits and consultants, resulting in cost bloat and the waste of taxpayer money. We’ve farmed out environmental regulation to the courts and to private citizens, resulting in paralysis for industry and infrastructure alike. And we’ve left ourselves critically vulnerable to threats like pandemics and — most importantly — war.

[…]

If government spending isn’t going to pay government workers, it must be going to pay people who work in the private sector — nonprofits, for-profit contractors, consultants, and so on. In other words, state capacity is being outsourced. But this graph doesn’t actually capture the full scope of the decline, because it doesn’t include outsourcing via unfunded mandates — things that the government could do, but instead simply orders the private sector to do, without providing the funding.

* https://www.noahpinion.blog/p/america-needs-a-bigger-better-...

Mentions the paper "State Capacity: What Is It, How We Lost It, And How to Get It Back" (22pp, so short):

* https://www.niskanencenter.org/wp-content/uploads/2021/11/br...

And the book Bring Back the Bureaucrats: Why More Federal Workers Will Lead to Better (and Smaller!) Government:

* https://www.rutgersuniversitypress.org/templeton-press/bring...

vkou• 1 year ago

Most of the stuff the UK is struggling with (transport, healthcare, energy) are "state capacity" issues.

Oh, boy, let me tell you, the 'State capacity' of the United States, when it comes to doing things that aren't making war on its own, or other people, was both rotten to begin with, and won't survive another four years of this regime.

Dysfunctional as the UK is, it's government is not stuck at a triple point of learned helpelessness, intentional sabotage and paralysis (the US is currently, among other things, doing its best to bring cured diseases back), and a deeply negative-sum culture.

I've heard that the United States was a magical land of milk and honey in this respect, back when 'competent bureaucracy' wasn't a swear word in it, but I understand that ended ~45 years ago. (With a few surviving holdouts, like the Fed)

callamdelaney6• 1 year ago

[flagged]

logifail5• 1 year ago

The UK stepped on its own rake because it was obsessed with tiny, already vanished industries like fishing

This isn't just a UK issue:

"Fishing is a relatively minor economic activity within the EU. It contributes generally less than 1 per cent to gross national product."[0]

and if you look beyond fishing, agricultural policy as a whole is - not sure how to put this politely - not easy to understand:

"The CAP is often explained as the result of a political compromise between France and Germany: German industry would have access to the French market; in exchange, Germany would help pay for France's farmers [..] The CAP has always been a difficult area of EU policy to reform [..]"[1]

[0] https://en.wikipedia.org/wiki/Common_Fisheries_Policy [1] https://en.wikipedia.org/wiki/Common_Agricultural_Policy

ajb2• 1 year ago

There are two parts to the fishing thing. From a pure economic perspective, fishing is insignificant. But within living memory obtaining food was a national security issue for the UK (during world war II). In a world in which states look not to grow their economy, but to harm others - and guess what, that's where we just arrived - not all industries can be considered purely on their revenue. Man cannot live on warhammer alone.

We need to distinguish between paying over the odds to keep industries which are essential to have in an antagonistic scenario, from loss-aversion and nostalgia for industries which don't provide as much employment as they used to.

rayiner8• 1 year ago

The free traders also need to accept the reality that the UK’s decline started long before Brexit and disputes about fishing. In terms of per capita GDP, the UK lost its edge over the rest of Europe in the 1970s, and then simply never recovered from the 2008 global financial collapse. Without the empire, the UK’s “competitive advantage” in financial and legal services wasn’t worth shit.

I strongly suspect the US cannot maintain its outsized per capita wealth, on the back of the reserve dollar, in a world where China has an economy twice the size. Just as the UK couldn’t when the US economy overtook the British empire and the dollar replaced the pound as the reserve currency.

The question, instead, is how we’ll be able to adapt to that new reality. And I suspect we’d rather be Germany in that future than the UK.

Izikiel432• 1 year ago

While real UK manufacture successes (cars, aircraft, satellites, generators, all sorts of high-tech stuff) get completely ignored

Here is my take on this:

For those things, you probably need a lot of technical training and/or advanced degrees.

For fishing you just need to be more or less healthy and be able to follow instructions.

Most people are more or less healthy and are able to follow instructions. A small subset of those has advanced technical training and/or advanced degrees.

Therefore, fishing becomes important because a lot more people can do it, and those people vote.

niemandhier5• 1 year ago

The total volume of money flowing through fishing related business is much larger than through warhammer related.

Fishing distributed about 1 billion in household income in the uk.

Fishing supports about 12.000 direct jobs plus 5.000 in related industries in the UK.

Warhammer has about 3000 employees GLOBALLY. Trickle down is not really present here.

Businesses that do not distribute wealth in the general population are much less relevant than those that do. Taxes are nice but businesses are good at avoiding them ( especially via Ireland ), whereas income tax is the major supporter of our states.

jdasdf• 1 year ago

Most of the stuff the UK is struggling with (transport, healthcare, energy) are "state capacity" issues.

None of those are state capacity issues.

Those are "State is pointing a gun at anyone who would fix them" issues.

Friendly reminder that 95%+ of the UK railway system was built by private for profit companies, with state involvement being primarily limited to not preventing it from happening.

All of these issues are 100% self inflicted by the state getting in the way.

All that needs to happen for them to fix themselves is to stop actively preventing private individuals from fixing them.

slt20218• 1 year ago

Agree, UK did not have a smart and capable leaders and elites for a very long time.

The elite/ruling class need to be replaced with the more capable and smarter ones

api• 1 year ago

It’s not rational at all. It’s nostalgia.

I wonder how deeply connected all this politics of nostalgia is to the fact that birth rates have been declining for decades and populations are older.

Given the older population and the country’s history as a bygone empire I bet nostalgia is thicker in England than the US, but US side there sure is a lot of it.

A lot of MAGA is about making the country the way it was when boomers were kids (50s, 60s) to prime age adults (80s to early 90s).

There’s even a hint of genX nostalgia too. A while back I was hearing some IDW type railing about how “woke” killed comedy and it hit me that there’s a strong undercurrent of nostalgia for the 90s when comedy and pop culture were all about being an edgelord. The fact that edgelording is "out" is blamed on "woke" and they lament that "comedy is dead" etc. I'm not sure how much "woke" has to do with it. I think... well... edgelording is just out.

Change reminds people of their mortality and it always generates a backlash. You’re not young anymore.

SlightlyLeftPad• 1 year ago

It feels like the US is going to step on its own rake however. Instead of Fishing, it’s manufacturing. Largely a dead industry that has proven to struggle to stay profitable without extremely cheap back breaking laborers or huge regulatory cuts that we’re just not going to be able to sustain, putting both employees and customers at risk.

cowfarts3• 1 year ago

Fishing employs tens of thousands of people and feeds an entire nation.

Warhammer employs hundreds, enriches a half dozen and addicts a millions.

I'd rather keep the fishermen

vasco• 1 year ago

Can't really eat plastic figures. And you maybe only ate frozen fish in your life but fresh fish is great.

It's way more profitable for me to work than to sleep but I still sleep.

gadders2• 1 year ago

I don't think we will be making much of anything in the UK until energy prices come down, which is unlikely to happen with little new nuclear coming on stream and fracking new North Sea oil being banned.

The good news is though that if EG steel manufacturing moves to China and starts using cheap coal fired energy and selling back to the UK, it helps the UK meet its Net Zero targets.

bfrog2• 1 year ago

Yes but how many people are employed and well paid by warhammer? How many were employed and paid by fishing?

Dollars don’t vote, people do!

mapt5• 1 year ago

The UK stepped on its own rake because it was obsessed with tiny, already vanished industries like fishing.

[US-wise] Coal and cereal grain agriculture automation have also seen ~98% drops in employment while raising production levels. The industry doesn't have to disappear monetarily for the jobs to be gone.

yapyap2• 1 year ago

Americans need to get over their view of “Asia” as being about making shoes

I’m not sure if you’re just speaking on what you experience or because of this post but the OP is a clothing guy so it makes sense he will look at it from a clothing (including shoes) perspective.

I agree though, if Americans truly do see Asia as just the cheap clothing factory continent they’re sorely mistaken. All you have to do is to just look at TSMC (Taiwan Semiconductor Manufacturing Company) and realize that if you were impacting just that company alone you would get a slap in the face as a country, all (~70%) the major chips come from there.

I am aware the US is developing a Semiconductor factory in their own country but it is not done yet and it will not go as tiny in nms as TSMC already is.

lossolo2• 1 year ago

This. Anyone who doesn’t believe it — please go spend some time in Shenzhen, Shanghai, or similar cities, like I did. I just got back from China. I’ve been (also lived and worked) to the U.S. many times, and I can confidently say that China’s tier-1 cities are on another level when it comes to development and QoL (and not only T1 cities, I was in smaller regions in the north too). It’s also incredibly clean, super safe, and the infrastructure is breathtaking.

tayo422• 1 year ago

That's been my current dream trip for a little. I think it woukd be so cool to ride the trains around the country and see what it's really like there. Learning the language is hard though

toephu2• 1 year ago

Yup, Chinese Tier 1 cities (Beijing, Shanghai, Guangzhou, and Shenzhen) are probably 20 years ahead of their Western counterparts (in terms of crime, or lack thereof, public transportation, convenience, cleanliness, etc).

spaceman_20208• 1 year ago

Cousin was in China last month. Left Shanghai for a meeting in Beijing in the morning. Was back in Shanghai by night

All via train. In cities that are 1300km apart.

da022• 1 year ago

Any experience or thoughts on Vietnam and Malaysia? Are they also moving ahead?

tim3334• 1 year ago

Vietnam was one of the fastest growing countries in the world but from a low base. They were following a similar trajectory to China but about 20 years behind. Not sure how the tariffs will affect things.

decimalenough7• 1 year ago

Vietnam is the next China, they're still behind but catching up fast.

Malaysia is handicapped by the resource curse (lots of oil) dysfunctional government and race politics that serve to drive out everybody who is not ethnically Malay.

herbst4• 1 year ago

I was in Malaysia ~10 years ago. I saw a lot of weird things for sure, but I also saw a modern capital city that could easily shadow over many European cities today in terms of life quality, fancyness and nearly any metric.

I didn't see any shoe manufacturers :)

Herring• 1 year ago

What will be America’s competitive edge in that scenario?

Comparative advantage means countries benefit from specializing in producing goods or services where they have the lowest relative opportunity cost - not necessarily where they're the best overall. Even if China focuses on technology (and this is far from decided), America can still thrive by specializing in other areas where its relative efficiency or unique capabilities are better.

Examples: Germany specializes in high-precision manufacturing, India does well with software development, IT services, and medicines, Australia exports minerals, natural resources, and agricultural products, etc. Everybody brings something to the table. The world economy cannot possibly get worse by adding 1B people doing top-level work.

Ricardo's theory implies that comparative advantage rather than absolute advantage is responsible for much of international trade.

https://en.wikipedia.org/wiki/Comparative_advantage

BTW these would have been great ECON 101 discussions to have before the election.

harvey92• 1 year ago

India does well on software development partly on a volume basis. Their top end developers often want to move abroad for career development and earning potential. I would not be surprised if potus put tariffs on H1Bs

lolinder7• 1 year ago

Be careful extrapolating based on China's current population and demographics. Too much of our armchair assessments of China's velocity is based on their meteoric rise on the backs of a historically large working-age population—a population that is now rapidly aging out of the workforce with nothing to replace it thanks to the one child policy. The US's demographics aren't stellar, but they're a lot better off than most of the developed world.

It remains to be seen how different 2010's China—with 90% of the population being under 60—is from 2050's China—with only 69% of the population being under 60.

https://www.populationpyramid.net/china/2050/

peterfirefly4• 1 year ago

The one-child policy didn't play as large a role as people in the West think. Chinese fertility rates had already fallen drastically before that policy.

(It was also not as absolute as people in the West think. There were exceptions for rural China and minorities.)

spaceman_20208• 1 year ago

It’s a little more nuanced than that. Western demographics are largely propped up by immigration, which brings with it its own sociopolitical challenges. What you gain in demographics, you might lose in social cohesion and political stability.

forgotoldacc2• 1 year ago

India has a bigger population but they haven't risen anywhere near the way China has.

China's rise was due to smart planning and investment in their people and infrastructure. The country went from peasant farmers to the manufacturing hub of the world in a generation. Now they're in the process of becoming a major hub of knowledge workers while keeping a strong manufacturing backbone.

And one thing I rarely see mentioned is that the Chinese government keeps its currency artificially devalued in order to sell their products cheaply and undercut competition. Looking at their economy purely on a GDP basis really underestimates how big their economy is. GDP by PPP is more accurate. If China ever decides to stop loosely pegging its currency and let the value naturally rise, their GDP will very likely swell, since GDP is measured in US dollars.

newuser94303• 1 year ago

China installed more industrial robots than the rest of the world combined.

https://ifr.org/downloads/press2018/2024-SEP-24_IFR_press_re...

https://ifr.org/ifr-press-releases/news/global-robotics-race...

ninetyninenine8• 1 year ago

We need to anticipate a future where China is equal to America on a per capita basis,

This is a nice way to put it.

Anticipate a world within your life time where China is the dominant economic, technological, military and cultural super power.

Anticipate jealousy, anticipate fear, but know that as Americans who have been top dog for decades there is nothing wrong with not being the best.

Additionally anticipate a changing world view less focused on the view that freedom and democracy as the only possible way to lead and anticipate that despite the fact that China is a communist country and centrally controlled they don't want conflict and they don't want total war.

China and the US are not perfect. The US needs to accept this fact and it needs to accept that another is about to take it's place as the top dog.

zppln2• 1 year ago

cultural super power

My impression is that Chinese culture has very little appeal elsewhere (at least in the West). They can't seem to be able to (or care to) package it in an appealing way. Sure, they're being catered to in films and video games but I see very little organic interest in Chinese culture, especially compared to Japanese or Korean culture.

selfmodruntime6• 1 year ago

China is not communist in anything but name. They are an authoritarian capitalist country with social policies.

overfeed2• 1 year ago

What will be America’s competitive edge in that scenario?

A few months ago, I'd have said soft-power and goodwill built over decades with the rest of the western world, which roughly equals China in population size. Instead, I agree that the US is staring down a "managed decline" like the UK, but hopefully not as steep.

doctorpangloss5• 1 year ago

…what does this have to do with shoes? A “managed decline?” Brother, the problem with the UK economy is Brexit. That was put in by a plebiscite. It’s not saying much, but at every level, including in the manufacture of shoes, the government has the greatest power to create or destroy wealth.

rib3ye• 1 year ago

I think it's pretty clear what Trump's long-term solution is with unobtainable economic goals on China and strategic outreach to Russia — He wants to turn that 4x into 1x via hot war before the Xi's 2027 military goals are reached.

umanwizard• 1 year ago

I’m no Trump fan but I think it’s a bit of an exaggeration to say he wants to genocide a billion Chinese people…

bboygravity2• 1 year ago

Except that that future of a big powerful China doesn't exist. Their birth-rate is 1.

Game-over.

Izikiel432• 1 year ago

The USA is also below replacement levels.

missedthecue• 1 year ago

China will probably be the only country that solves this.

ignoramous• 1 year ago

When I was working in engineering in the early aughts, we mocked the Chinese as being able only to copy American technology. Today, China is competitive with or ahead of America in key technology areas, including nuclear power, AI, EVs, and batteries.

I wrote this not long after (10y ago) and I think this view is still unpopular now as it was then (for reasons beyond me):

  I fully expect Baidu and other tech giants on the Chinese shores to try and push the boundaries of technology. Silicon Valley (and the US) in general has always been the hot-bed of innovation. But with enormous increase in wealth in China (and to an extent in India), I can see these companies being more and more ambitious. Not long ago Andrew Ng of Coursera and Stanford AI Lab fame joined Baidu to further their rival to the 'Google Brain' project. 

  Xiaomi has long been positioning itself as a company with design chops of Apple, engineering chops of Google, and e-commerce chops of Amazon, all rolled into one-- and I can see where they are coming from. If they manage to pull it off, I guess that's when we'd start seeing the proverbial "Death of Silicon Valley" as in, it loosing its strange monopoly and strangle hold on tech world in terms of both talent and innovation.

https://news.ycombinator.com/item?id=9421471

eagleislandsong3• 1 year ago

for reasons beyond me

It might help to understand that the resistance you have faced is probably driven by deep-seated biases and stubbornness.

selfmodruntime6• 1 year ago

Silicon Valley has stifled its own innovation by making too much use of regulatory capture and IP laws.

stronglikedan• 1 year ago

Americans need to get over their view of “Asia” as being about making shoes.

The vast majority of us were over that decades ago. Please catch up for the sake of all humanity.

Symbiote19• 1 year ago

Yesterday your vice president referred to the Chinese as "peasants".

umeshunni• 1 year ago

The reality is that most USians and EUians still have some 1990 view of what Asia and China is. Or they cope with some 'freedom' or 'slave labor' anecdotes.

My comment on another thread about how China is now a developed country was downvoted by some HNer who swallowed some Guardian anecdote: https://news.ycombinator.com/item?id=43627315

Exponential growth is a hard concept to internalize.

profsummergig2• 1 year ago

Americans need to get over their view of “Asia” as being about making shoes.

I blame Peter Zeihan for this kind of thinking. His views are immensely popular in the very powerful and influential circles. And he constantly derides China's capabilities. Since 2014 he's been saying it's going to collapse any day now. He still says it.

vixen995• 1 year ago

As does Gordon Chang "The Coming Collapse of China" (2001)

snerbles• 1 year ago

There are rank-and-file members of the western intelligence community that watch/read Zeihan just so they know what their own leadership is ingesting.

Aaronstotle• 1 year ago

Maybe it will come full circle and the US will commit IP theft to catch up to the dominant Chinese companies.

bilbo0s2• 1 year ago

All for it.

We should be doing that right now.

senderista• 1 year ago

Then they’d just be back to where they started in the early 19th century, stealing Britain’s IP to become an industrial power.

https://www.history.com/articles/industrial-revolution-spies...

yen223• 1 year ago

See e.g. Youtube Shorts and Instagram Reels

pbreit• 1 year ago

These analyses always assume no margin compression which is wrong.

ReptileMan• 1 year ago

What seems most likely to me in the future is that the US will find itself in the same position the UK is in now.

Not quite. USA is big enough to be able to be self sufficient if they keep mexico and Canada tightly bound via NAFTA or military might. UK have no option but to trade. UK was rarely able to feed and fuel itself after the industrial revolution.

Thaxll• 1 year ago

Average American would be shocked to see a city like Shenzhen. It's like living in the future.

padolsey• 1 year ago

Agree! I wish Americans would travel more and escape their media bubble. China is incredible. I was in Chonqing and then Shenzhen recently, and live in Beijing. Truly it's very divorced from what western people have grown to expect.

throwaway484763• 1 year ago

The average Brit is now poorer than the average Pole. Dominating finance hasn't worked out well for the citizens of the UK.

mercutio2• 1 year ago

Dominating finance + Brexit.

Brexit worked out fairly badly for rich folks. I'm not sure how well it worked for the folks who were voting for it, but it's possible "take the rich folks down a few notches" even if it lowers the median income, if you yourself don't earn the median income, is still seen as worth it.

markus_zhang4• 1 year ago

What will be America’s competitive edge in that scenario?

I'm sure that the US still has many edges over China in high-end technology. I remember I read a research article back in 2012/2013 which listed all fields that China were lagging behind, including pharma, computer chips and some other stuffs. It's a fairly long list. I'm sure China managed to catch up in some of the fields but I doubt all of them.

bilbo0s2• 1 year ago

I'm sure China managed to catch up in some of the fields but I doubt all of them.

And if you could guarantee that they'll never catch up in the others, we'd all feel a bit better about the permanency of American superiority.

Absent that guarantee, we need to bench test those scenarios and be prepared with plans that best serve American interests should those scenarios come to fruition.

XorNot3• 1 year ago

China used to be lagging behind in all areas. Now it is not.

The US pre-WW1 was an isolationist nation with few I'd any exports, not the global manufacturing powerhouse it became afterwards.

Things change and always change.

vitorgrs4• 1 year ago

There's a Australian study tracker, and I think things got way closer now...

https://www.aspi.org.au/report/aspis-two-decade-critical-tec...

lanthissa• 1 year ago

US wont end up in the situation that UK finds itself in because the land it occupies is some of the most productive land on earth and at a similar scale as china. The incredible wealth of america, is that its a land mass that in the old world would be supporting 500m-1.5b people, but is divided only amount 350m.

The city at the center of the Missouri and Mississippi if it were in europe would be a major civilization. In the US its saint louis. The US, CA, and AU have an option few countries do -- at any point they want nominal gdp growth all they have to do is open the door.

I agree with you though that china's incredibly impressive.

literalAardvark3• 1 year ago

I'm not super knowledgeable about AU, but my gut impression is that it doesn't have much in the way of natural advantages.

Yes, it's lowpop, but that's about it.

Somewhat similar for CA, but CA is a lot better off than AU.

niemandhier5• 1 year ago

Nope. Well maybe, if trumpism continues.

Point is: The best and brightest go where they think their life will be most fulfilling. Up to last year that was California for tech and New York for culture.

Even the Chinese think china is oppressive. https://en.wikipedia.org/wiki/Tang_ping#:~:text=Tang%20ping%...

decimalenough7• 1 year ago

It's not the best and the brightest who are lying flat, but those who lost the rat race.

All things considered, most Chinese would prefer to stay in China, and if you're rich there you've got it made.

encoderer• 1 year ago

Do they not just steal our IP and then industrialize it better than us, partly because of their current demographics (which are rapidly changing), partly because of lax environmental standards, and partly because they need economic growth to support their oppressive regime?

hemabe• 1 year ago

China could not only be ‘equal’ but ‘better’ than the USA - we should get used to the idea. China has an average IQ of 104 out of 1.4 billion people, while the USA has an IQ of 97. In purely statistical terms, this means that the USA has around 700,000 people with an IQ >= 140. China has 11,480,000 people with this IQ. This human capital will make the difference.

ericmay3• 1 year ago

IQ isn't much of a proxy for anything, especially in this context.

marxplank2• 1 year ago

this has to be one of the most illogical hedges

slt20218• 1 year ago

due to immigration, USA draws talent from global population of 8.2 billion, so the top limit of people with IQ>140 that can live in USA should be drawn from 8.2 billion, not 340 mln

tptacek2• 1 year ago

None of this is meaningful. IQ as national population-level statistic is folkloric. China may well have a human capital advantage over the US; that's what you'd expect from a country with over 3x as many people. But it has nothing to do with biological differences between Americans and Chinese people.

wildzzz• 1 year ago

Average IQ is probably the most bullshit metric to compare two countries. Literally anything else would be better.

dfee• 1 year ago

There are a lot of sleeper or new accounts in this discussion. I’m afraid there’s a bunch of astroturfing.

Oh, hackernews, how you’ve fallen :(

ForOldHack7• 1 year ago

Korea, despite developing MRI, still has a large amount of farmers, that do not get paid a living wage: No one really knows, because its a souce of shame.

"AI Overview

It's difficult to provide a precise number of Asian countries where farmers don't earn a living wage without specific, up-to-date data and a clear definition of "living wage." However, many Asian countries face challenges in ensuring farmers receive sufficient income to cover basic needs."

I will assure you, from being an eyewitness, its worse.

seanmcdirmid6• 1 year ago

The US was going down the "let dominate IP/technology" angle for awhile, but we only accomplished it with imported labor (look at any SWE shop). China is obviously developing the talent to do the same, and they are rapidly automating manufacture work as they approach a demographic cliff. They are basically making all the right investments for the future while we try to go back to the 1950s. It is extremely frustrating.

bamboozled4• 1 year ago

Back to coal mines.

rcpt• 1 year ago

They're doing the right thing just about everywhere. Except real estate. One wrong move and it's 90s Japan all over again.

bamboozled4• 1 year ago

America is not going to get there and stay there by being stupid.

runako• 1 year ago

We need to anticipate a future where China is equal to America on a per capita basis, but four times bigger. Is that a world where “Designed by Apple in California, Made in China” still makes sense? What will be America’s competitive edge in that scenario?

The likely answer lies in the fact that this would mean China & America are both high-income countries. There are likely to be other countries looking to be "the next China" to ascend the income ladder. As is now, rich countries will outsource work to those poorer countries.

This doesn't have to be zero sum.

yodsanklai• 1 year ago

We need to anticipate a future where China is equal to America on a per capita basis, but four times bigger.

Is it even possible in terms of resources? there are limits to growth and it may not be feasible for 1.5 billions people to consume and pollute as much as an average American.

Also are the US willing to lose their supremacy peacefully?

XorNot3• 1 year ago

It seems apparent that the answer is yes though. The US likes the idea of wars more then fighting them: the guy who talks about the greatest military on the planet is also not subject to the draft and never tried to join.

In so much as generalizing a nation can still leave large exceptions, wars of conquest are useless to America: it hates running occupations, and it's own citizens are not going to move abroad in sufficient numbers to provide a labor force to utilize the conquests.

refurb6• 1 year ago

That future is far, far off.

China’s per capita GDP is 1/7th that of the US.

To match the US GDP per capita would require China growing at 10%/yr for 35 years (while the US grows at 3-4% per year).

Thats 35 years of phenomenal growth, with no recessions, no “slow” years of only 5% growth (like the past 3 years). Assume an average of 7% growth (and US 3%) and now it takes 50 years to match the US per capita GDP.

This is why GDP growth of 5% is regarded as “bad” in China. They need double that.

And China needs to do this all the while having massive debt overhang, a world moving away from free trade (which their economy is highly dependent on) and a shrinking and rapidly aging population (by 2050 it will be 1 worker per retiree).

I don’t have a crystal ball, so who knows, but suffice to say if things stay relatively the same it’s going to be 2060-2070 before China is as rich as the US on a per capita basis.

vixen995• 1 year ago

https://en.wikipedia.org/wiki/Pollution_in_China

9283409232• 1 year ago

Even if you believe this, the way you do it is incentive manufacturing in the US not 200% tariffs. It takes time to build up domestic manufacturing.

selfmodruntime6• 1 year ago

When I was working in engineering in the early aughts, we mocked the Chinese as being able only to copy American technology

Perhaps you should have considered that like in Art, the first step to proficiency in anything really is mimicry.

hermitShell• 1 year ago

True, and now I believe China has kept their industrial might while also pursuing higher technology. So they have the mine and the steel plant and the car factory. I recall Musk commenting that through human history, it’s more normal for China to be the most advanced nation on the planet, not the USA. Still, brutal place to live and work. Ultimately you have to offer people a chance at happiness, or else internal failures tend to sabotage all external signs of success.

gizajob• 1 year ago

Designing the most stylish bevel radius on edges.

627467• 1 year ago

we mocked the Chinese as being able only to copy American technology

As you state they haven't been "only" copying for a while and my problem with people keep repeating this "logic" (mea culpa) is precisely what's at stake right now: designing and "creating" is critical, but I'd argue that civilization is not made my design or one-off (or limited) editions. Civilization is the ability to innovate in mass production, in doing so, consistently in lower and lower costs. China excels (and will continue to excel) while they continue to appreciate this. The "service sector" world stopped caring about this.

xivzgrev2• 1 year ago

Competitive edge is new innovation and I don’t see that changing anytime soon. The rules and culture favor it in the US, more so than anywhere else on earth.

China didn’t invent the iPhone or chat gpt. But they excel at optimizing.

sien2• 1 year ago

DJI is the premier drone company in the world.

Also in places where Chinese electric cars are not being blocked they are really taking off. In 20 years for billions of people the most common car will be a Chinese one.

China is able to build nuclear reactors while the US is floundering.

The Chinese may well be the first to produce electricity from fusion.

People come back from Shenzhen now to the US and say that the US now feels less advanced.

The US certainly leads in some areas. But not longer all areas and things are moving toward China.

bdangubic5• 1 year ago

This is old old China you are describing… The new China is not merely optimizing but both innovating and making superior… For people that have the priviledge to visit China, the first thing you’d notice is that they are on another level from America, in every possible way. Going to Beijing and then going to any city is America is like going to NYC and then going to Toledo

bonestamp22• 1 year ago

The most shocking thing for Americans when TikTok was shutdown for half a day was when they switched to the Chinese version of the app and they saw the truth -- that the middle class in China is living a higher quality of life than they are.

horns4lyfe4• 1 year ago

I didn’t see that at all, but I also don’t consider flashy technology to define quality of life.

subsubzero2• 1 year ago

I see what you are getting at but I have to disagree with alot of what you are saying.

the US will find itself in the same position the UK is in now

The US and UK are totally different animals at the height of their "empire". The UK currently has little land and alot of it is devoid of minerals(sans coal). They achieved most of their might subjecting other countries and extracting resources from their colonies. Once the colonies and the rest of the world objected the British empire began to crumble as the colonies broke off from the UK.

Contrast that with the US which if it were to jettison its "colonies" (Puerto Rico, Samoa etc) you would see very little drop in GDP. The US has vast swaths of land which is excellent for farming, energy extraction and contains valuable minerals. It has widespread and diverse populations with wildly different ecologies and climates. In addition to a huge amount of resources it has a kings ransom of some of the best universities in the world(stanford, harvard, MIT, etc) and a highly educated society with living standards just below some small asian and european countries. The US also has a peerless military (we need hypersonic weapons however) and many aircraft carriers and nukes as well as world renown special forces groups. And lastly of the top largest 100 companies in the world, 65% are US based and this despite the US only having 4.2% of the worlds population, looking at GDP per country is almost comical as the US has 30T compared to the next largest economy China(19.5T), 3rd place is Germany at 4.9T.

williamDafoe• 1 year ago

USA has three advantages that no place else in the world has. First we have the biggest oil deposit in the history of mankind with the Permian basin. Second we have more inland waterways in the Mississippi River system than the whole rest of the world combined and third this abuts the best farmland on the planet.

I would say that the USA also has an advantage of open immigration for intellectuals to keep our universities strong but the anti-intellectual Trump administration is destroying this advantage as fast as it can!

The greatest advantage that we ever had was to lead the free world in ideals. A friend of mine was telling me yesterday that every child in India when they reach the age of six wants to go to Harvard and settle in the USA. They want to stand up for freedom and for democracy and for putting down all the evil dictators in the world. We are losing this image very very quickly it could be gone in a matter of months!

Don't brag about our aircraft carriers it would take us 25 years to build 11 more. We are nowhere in ship building we destroyed our domestic shipbuilding in the 1980s when we reoriented it for military shipbuilding and then the Berlin Wall fell down and we drastically cut the military shipbuilding budget and that caused our shipbuilding to go to almost zero overnight (3 heavy ships per year nationwide whereas China's largest ship builder does THIRTY!).

emrah• 1 year ago

China got to where it is by taking loooots of inspiration from American tech. And it's not their fault US doesn't like the Chinese gov yet won't stop using their facilities to manufacture because they are cheaper..

kazinator• 1 year ago

Businesses in a country that is a complete economic power house from plastic spoons to particle colliders and supercomputers are not going to outsource their finance to an overseas has-been.

They have their own straight-C-plus high schoolers they can train in finance.

yosito2• 1 year ago

We need to anticipate a future where China is equal to America

I'm a US American living in Asia. I can't tell you with 100% certainty that in terms of technological progress, China is far far ahead of the US.

horns4lyfe4• 1 year ago

Can’t or can?

jtc331• 1 year ago

That assumes that China’s population doesn’t collapse, which mathematically seems quite likely (and it’s already declining).

alvah• 1 year ago

"We need to anticipate a future where China is equal to America on a per capita basis, but four times bigger"

Four times bigger absolutely will not happen; China's demographic disaster is already baked into the cake. Forecasts suggest China's total population will be around 1.5x the USA by 2100, but the average age / working age population will be in the USA's favour.

doctorpangloss5• 1 year ago

Okay… what does this have to do with tariffs or shoes though?

…China equal to America on a per capital basis

Hmm, what number do you mean will be equal? Income per capita? If the Chinese system paid Americans the same as the American system does, why would Nike operate its sweatshops there? Kind of tautological, no?

johnalbertearle2• 1 year ago

Correct.

johnalbertearle2• 1 year ago

Correct. USA will become like UK. Trump is trying to basically change the situation but he is pissing against the wind.

vitorgrs4• 1 year ago

You actually talked about a point that I think most people forget. One thing is Japan or Korea being super good in tech.

Another thing is when you basically have 10 Japan or 20 South Korea, which is what China is with the 1bi population.

Which means not that they will have a lot of consumers, but way more competitive companies in general (if they continue growing as is).

matheusmoreira• 1 year ago

If it happens, the US will have nobody to blame other than itself. Industry is what generates wealth. The USA deindustrialized itself when it moved all of its manufacturing overseas for the sake of greater profits. It gave away its intellectual property on a silver platter so that things could be made cheaply. Other countries are only too happy to take advantage of american greed.

marenkay7• 1 year ago

Hasn't that point already been reached given the US could not sustain itself in any reasonable way without Chinese labor and knowledge?

There seem to be a lot of companies in the S&P500 that would dry out without access to Chinese workers and goods. Just take cloud providers. Where is their gear sourced from? Is there any realistic chance to provide that from within the US? Given the current state that would become necessary but seems highly unlikely to be achievable.

pjdemers• 1 year ago

Darn right. Lots of smart, hard working, innovative people in China. And every single one of them would get on plane tonight if they could get a visa to live in US or UK (and a few other countries). So, which countries offer a better future for our children?

dom3k3• 1 year ago

I'm from Poland, and I'm quite sure that 15 years ago you could say the very same thing here. Not anymore. Things change.

magic_hamster• 1 year ago

"Asia" is not about making shoes, but any company will manufacture where it makes the best economical sense. Currently if that's somewhere in Asia, so be it. It doesn't take anything away from Asian countries if they can offer lower labor rates. Some Asian countries are so big and has such staggering class differences that they might be able to continue offering cheap labor while being competitive in technology, because the people involved in both areas live in totally different ecosystems.

wordofx2• 1 year ago

Today, China is competitive with or ahead of America in key technology areas, including nuclear power, AI, EVs, and batteries.

I can’t tell if you’re brainwashed by propaganda or just spreading propaganda.

China is great at making things flashy. But the quality things like EVs is low. The battery quality is not good. The promise of long range cars is often 30% of the promise. Cars leaking. Rusting like American made cars.

herbst4• 1 year ago

Yet it took only 2 years and you see WAY more Chinese cars for example here in Switzerland than American ones (which was 95% Tesla anyway)

victorbjorklund• 1 year ago

Indeed. The primary reason to go to China is not that it is lowest cost (but of course lower cost than US) but rather that they have the skills and infrastructure for it.

LightBug1• 1 year ago

You might be right. The USA seems to be indulging in its own Brexit moment ... and looks where that got the UK (...irrelevance).

cylemons• 1 year ago

We need to anticipate a future where China is equal to America on a per capita basis, but four times bigger. Is that a world where “Designed by Apple in California, Made in China” still makes sense? What will be America’s competitive edge in that scenario?

Military

sandworm101• 1 year ago

> future where China is equal to America on a per capita basis, but four times bigger

That is an environmental apocalypse best avoided as early as possible.

ekianjo• 1 year ago

where China is equal to America on a per capita basis,

China is super far away from that and its demography is a time bomb that will get there first

arminiusreturns• 1 year ago

I'll never forget having to SSH into Bejing servers because nobody on that side could fix a problem... (working at a Chinese heavy company for a bit)...

I walked away realizing they are still copying the tech (IP theft, etc), but don't understand it nearly as well. The main thing that changed was the time-gaps, and by bypassing safety and other regs/norms, they just get to market first, but with a subpar product, usually with major issues.

I'm not nearly as afraid of this version of the future having experienced that, but of course, that was from a limited perspective.

That said, the sheer amount of $ being pumped into infrastructure of all types in China is a sight to behold, and also woke me up to how much our own government and big business entrenchment is suppressing American ingenuity.

philipwhiuk3• 1 year ago

Europeans can tell the same story about Americans.

numa7numa74• 1 year ago

The question you're actually asking is:

When will China start innovating instead of copying?

34679• 1 year ago

Who in America is China copying with their high speed rail? Who are they copying with their drone displays? What about their skylines that more closely resemble our sci-fi films than anything we've actually built?

The truth is, China is already the most advanced country in the world and if we ever manage to modernize our infrastructure and manufacturing, we will be copying them.

Wheaties466• 1 year ago

I'm genuinely asking this out of curiosity and a bit of naivety — are there as many international students pursuing advanced degrees in China as there are in the U.S.? I don't know the answer and would love to hear from folks who do.

1-more• 1 year ago

we mocked the Chinese as being able only to copy American technology.

Thing I disliked most about the movie Blackberry (and I liked the movie!): The Blackberry lost to a phone that could only have been made in China.

anigbrowl• 1 year ago

If you made it to the end of the thread, the author (a menswear/garment industry expert) explained that he was responding to comments along the lines of 'Nike pays $2 to make shoes in Asia and sells them at $150, earning a $148 profit, we should bring some of that money to American workers'. I did not get the impression that the writer was characterizing Asian industry in general, he just happens to be knowledgeable about this particular industry.

I have been having similar discussions over the last week with people about synthesizers/pro audio gear (a topic I happen to be expert on), and the market dynamics are roughly the same. The goods themselves have a much smaller market and a much higher median cost than shoes, obviously. But components, assembly, and a significant amount of technical (PCB) design originates in China.

Projectiboga• 1 year ago

We still have much more raw materials, farm land and forests than the UK, and likely more of everything, even percapita.

ersiees• 1 year ago

So, 100$ Nike shoes will soon be 125$.

darknavi• 1 year ago

The specific (fictitious) example they gave was $100 -> $150 due to a ~$23 tariff.

But if we bump the cost of freight, insurance, and customs from $5 to, say, $28, then they wholesale the shoes to Footlocker for about $75. And if Footlocker purchases Nike shoes for $75, then they retail them for $150. Everyone needs to fixed percentages to avoid losses.

The point being that many parts of the supply chain don't operate on fixed costs and instead percentages.

Symbiote19• 1 year ago

The point being that many parts of the supply chain don't operate on fixed costs and instead percentages.

That's how it was working in most wealthy countries, where tariffs were generally low or very low.

I don't see why it must continue to work that way in the USA with 50% or 100% or more tariffs. If Footlocker wish to charge double the post-tariff price, that leaves room for a competitor to change double the pre-tariff price.

(Or double the pre-tariff plus a tiny bit, to account for the increased cost of insurance, theft etc.)

kjkjadksj4• 1 year ago

Still $25 when they hit the burlington or ross in 6 months then back to $75 when people resell those ross shoes on ebay.

tmaly2• 1 year ago

I think the one thing I am not seeing much discussion on is, will the end consumer pay for these $150 sneakers or will they simply switch to lower cost alternative brands?

bryanlarsen3• 1 year ago

The assumption in the modelling is that sales will decline proportional to the price increase. IOW, they'll sell 2/3 as many shoes at 150% of the price.

Probably not a great model, but it's simple and a reasonable guess. Remember all the competitors will have price increases too.

gorfian_robot3• 1 year ago

fun fact: sneakers are already $150. went shoe shopping at a "sketchers warehouse" and found a pair that fit well and noped them back on the shelf when I checked the price.

giardini3• 1 year ago

My sneakers have been $200* for the past 5 years but then they're made in the USA. It's time to buy a new pair.

* - I have a large foot and believe I'm paying primarily for the materials in my shoes, which easily weigh twice what my friends' shoe do!

tmaly2• 1 year ago

yes, I know we already have $150 sneakers, but you can get sneakers for $30 at Costco still.

gorfian_robot3• 1 year ago

Nike doesn't sell shoes. Those are a loss leader. They sell you brand and lifestyle bullshit at a very high markup.

reed1234• 1 year ago

"In fiscal 2024, footwear accounted for 68 percent of Nike's total revenues." https://www.statista.com/statistics/412760/nike-global-reven...

echoangle2• 1 year ago

Revenue doesn't really show they are not loss leaders. Profit would be more useful.

crazygringo5• 1 year ago

That's a bold claim. Do you have a source for that?

gorfian_robot3• 1 year ago

subtlety is lost. I am saying they aren't selling you $200+ shoes. They are selling you a shoe that maybe costs them $10 and $190+ of "brand".

hx84• 1 year ago

But if we bump the cost of freight, insurance, and customs from $5 to, say, $28, then they wholesale the shoes to Footlocker for about $75. And if Footlocker purchases Nike shoes for $75, then they retail them for $150. Everyone needs to fixed percentages to avoid losses.

I don't understand this paragraph. If Footlocker was okay with $50 profit/shoe, why do they need to claim $75 profit/shoe in their costs per shoe go up? The costs of handling the shoes, retail space, advertising, and labor are all fixed.

ty68532• 1 year ago

Because the market recognized value add is the capital investment and returns, including the credit basis on which inventories flow. These people are operating on a per $ basis, not a per shoe basis. If the margins % lower then the capital will flow to something else more profitable and then prices rise until the margins are relatively flat across similar productive investments.

pfortuny• 1 year ago

Gains and losses are measured in % not in quantity because a dollar (or ant currency) has no fixed value.

Sorry: I intended to reply to the grandparent.

pfannkuchen3• 1 year ago

That doesn’t really make sense to me.

The market cares about dollar returned vs dollar invested. If some piece in the middle of the chain goes up and end customer prices go up as well, that doesn’t directly affect investors at all.

The way it could and likely will affect investors is if people start buying fewer shoes, but that is a different process than what you are describing.

If I’m off base can you help me understand what you are saying?

amluto• 1 year ago

I don’t think this is quite a sufficient explanation. If I were an investor / owner of a distributor or retailer, I think I would observe that these businesses don’t scale arbitrarily and I would care about returns as a function of cost of goods sold, operating expense, and of cost of customer acquisition. In this context, cost of goods sold will include actual wholesale cost as well as associated costs that scale along with it: insurance, shrinkage, samples, etc. Cost of customer acquisition will not scale as strongly with wholesale cost — one would need to advertise a bit more to convince people to buy a more expensive shoe, but this should be less than linear. And operating expenses (retail square footage, warehouse space, cashiers, shipping and handling) are almost independent of the cost of the pair of shoes.

All that being said, tariffs drive up the cost of living, which drives up wages, which makes everything more expensive.

Vvector• 1 year ago

But the cost of buying and holding inventory goes up. If a store has 10k shoes in inventory @ $50/each, they are carrying $500,000 in inventory. If the shoes now cost $75, they need $250k more for inventory. Capital for inventory isn't free.

anthony_d• 1 year ago

The need for inventory decreases at the same rate as the sales throughout, e.g. if it takes twice as long to sell a pair of shoes than you only need to hold half as many.

alangibson• 1 year ago

Short answer is return on investment. If I get $50 on a $75 investment when I used to get it on a $50 investment, my ROI goes down. My investors are now mad. They sell their stakes and buy into a company with a better ROI. My stock price goes down and now I'm mad.

matt-p20• 1 year ago

In theory, you're right, however it ignores some key points;

-Some of their costs are in fact linear based on the cost of the item.

Inventory cost doubles, perhaps now they have to take out higher interest debt to finance that. Things like insurance would also at least double.

Transaction fees (like card fees at about ~2%) and other parts (like returns risk) also increase linearly.

-Reduced sales due to increased prices.

If an item is less affordable people buy less of them. Theft will also go up. If trainers were $100 a week ago and are now $200 - you will sell less, they will be stolen more.

All in you actually do need more than the fixed $50 of margin if the wholesale cost of the item changes from $50 to $100 - it may actually be that $100 is the correct number, or even too little - sales volume would concern me the most, particularly on this 'luxury' item.

bgirard• 1 year ago

Presuming that theft rates will increase also if the item is more costly and affordable to less[edit*] people. Also if inventory is damaged in the warehouse or on the sales floor, lost or unsold then those cost scale with the cost of the item.

hmottestad• 1 year ago

I think it depends a lot. I remember working in retail for a summer and saw some of the prices. If you wanted to buy an alarm clock, that was 100% markup, but if you wanted to buy the Garmin GPS then it was 15% markup.

I would think that specialised and expensive shoes have less markup than cheaper and more common shoes. But if the cheaper and more common shoes become 50% more expensive then there aren’t really any cheap shoes left to feed the bottom line…

runeks• 1 year ago

Inventory cost doubles, perhaps now they have to take out higher interest debt to finance that.

I'm pretty sure Footlocker doesn't borrow money to pay Nike up front for inventory. Nike is smart enough to know that there's zero chance their shoes will be sold if they sit in a warehouse, so Nike might as well ship them to retailers and get paid gradually as the shoes are sold to consumers.

onlyrealcuzzo2• 1 year ago

Additionally, their risk increases.

If the shoes don't sell, their losses can get much larger.

They need the potential to make more profit to offset this this potential for larger losses.

It's kind of like asking why Sears needs to make $200 in profit selling a refrigerator but only $2 selling a t-shirt.

Because that's just how it works...

treis• 1 year ago

Because it's mostly wrong. Luxury goods like Nike's, iPhones, et.al. are priced to maximize revenue. If those started growing on trees for free it wouldn't appreciably change the price. They'd just bank the extra as profit.

kstrauser• 1 year ago

An aside: the actual functional Nikes aren't luxury items, just really good shoes. My wife’s a foot surgeon and she won’t run in anything else because they fit her perfectly.

I've never found Nikes that work for me, but Brooks seem custom made for me personally, so that's what I get. They're about the same price as my wife’s Nikes.

lupire2• 1 year ago

Every product is priced to maximize profit (not revenue).

Apple sells lots of phones at different price points. So there is some price sensitivity via a vis value for money or competitive pressure.

gorbachev• 1 year ago

The truly luxury Nikes, the ones that cost way more than $100 - $150 are not priced to maximize revenue, however. The evidence is their pricing on secondary markets, which often price them at multiples of the retail price.

muzani• 1 year ago

There's cost based pricing and there's price based costing.

Food and clothing, anything with complex supply chains tend to be cost based pricing. As a rule of thumb, it's x3, maybe x4 for a well-branded item like Nike or Calvin Klein. Most innovations are on supply chain. E-commerce was such a big thing because it could cut out one middle man and lead to 30% price cuts or profit margins, and yet all these online shops ended up appearing in malls anyway.

Software is price based costing because there's no fancy supply chain. iPhones may be somewhere in the middle, hardware tends to have the worst of both worlds - high fixed costs and lots of middle men.

A McDonald's may have franchises and may own some restaurants internally, but they don't want to lose money, so they may base it on the lower profit margins - it makes no sense for a burger in one spot to be $4 and a burger in the franchise to be $5; both need to be $5.

Generally luxury brand do use more expensive parts, whether or not those parts add to the quality. And they do have higher profit margins. But the retailers, distributors, etc still take a 30% cut or so. And in the end, Louis Vuitton is still probably making lower margins than Plants vs Zombies.

NegativeLatency• 1 year ago

They'll sell fewer $150 shoes than $100 shoes?

ajmurmann4• 1 year ago

In addition to the points others are making, there is also the increased cost of inventory that doesn't sell. The flipside to the high markups from retailers is the high discounts you get on last season's fashion. This is the "fixed percentage to avoid losses"

dizhn• 1 year ago

My local produce store was complaing about this. The prices increased about 20 fold. What was once a small loss due to spoilage now became significant.

oliwarner• 1 year ago

Margin isn't profit. It's gross, before all your business expenses. If it's anything like the second example, they only see a few dollars out of that $50 as corporate profit.

allturtles• 1 year ago

There was a very good exploration of this in the context of boardgames here: https://stonemaiergames.com/the-math-of-tariffs/

crazygringo5• 1 year ago

It's a great question, and the answer is that you're missing the change in demand.

Let's say Foot Locker tries to keep the same absolute profit $50 and retails the shoes for $125 instead of the previous $100.

Now demand goes down, because more people will skip a new pair of sneakers. So Foot Locker's absolute profit goes down.

But they still have the same fixed retail space, advertising, and labor as you said.

So to try to keep their profitability, they need to increase the price more, which reduces demand even more, but it settles somewhere higher. And the place it settles (where total absolute profit is maximized) tends to be around the same 100% markup as before.

It doesn't need to be exactly the same, but as a general rule of thumb, these things do tend to work in proportional terms rather than absolute terms. And we're fortunate they do, because when manufacturing costs fall, that means absolute profit per unit can fall as well (while percentage remains the same), because it's made up for by more people buying.

rvnx• 1 year ago

There is also the fact that with each USD you can buy less and less as a private person.

So to have the same quality of life, you expect higher returns.

Which mean that you will choose to invest into companies that offers a better return, and for that, these companies will have raise their prices, which in turn, spirals into additional price raises.

bryanrasmussen• 1 year ago

I seem to remember from many years ago in retail that you should double charges every step of the way, so if you are paying 20 dollars for a t-shirt you should be charging at least 40 for it, as a sort of rule of thumb.

tshaddox• 1 year ago

Isn't that pretty intuitive? Imagine if they had to spend one million dollars in order to make $50 profit.

mclau156• 1 year ago

Every single person in the supply chain has a lever they can pull to change price, except the end consumer

lostlogin6• 1 year ago

except the end consumer

You can usually change what you buy.

tirant• 1 year ago

That’s actually the opposite. The consumer is the one dictating prices and preferences.

9rx8• 1 year ago

Not at the bottom of the supply chain. As a farmer, we get told what the price is. Our only lever is to opt out of selling if we don't like the price. Which is ultimately the same as the consumer opting out of buying.

tim3334• 1 year ago

why do they need to claim $75 profit/shoe in their costs per shoe go up?

A lot of the costs come from bidding against other retailers for employees and retail space. If you don't make as much as the rival retailer they'll outbid you.

You can sometimes get around that by buying direct from the internet.

conductr2• 1 year ago

Margin as a % is a key metric, more so than margin as a $. It's not always sensical but it's dominant in the business/investment community.

For example, you may announce to public markets that your profit has increased $10M despite margins eroding from 50% to 30%. You will likely be punished in terms of stock price. This is because you sold a lot more or trimmed some expenses (which is short-term good) but you are also now more risky because if sales decrease you will more easily run into trouble breaking even/covering operating costs (which is long-term bad).

slt20218• 1 year ago

more expensive shoes will lead to longer lead times to sell inventory, due to downward slope of the Demand curve (less demand for more expensive shoes).

If you sell $75 shoes, you can sell 1000 units/mo, but if your shoes are $100 you can only sell 700/mo and it will take 1.5 months to sell 1000 units.

This effectively increases fixed overheads per pair of shoes and decreases net margin per pair, given constant demand

ajsnigrutin• 1 year ago

I don't understand this paragraph. If Footlocker was okay with $50 profit/shoe, why do they need to claim $75 profit/shoe in their costs per shoe go up? The costs of handling the shoes, retail space, advertising, and labor are all fixed.

Some extra costs are real and linear to their "factory" price (returns, insurance, stolen stuff, less people buying less shoes, so they need higher margins to survive, etc.).

On the other hand... they can raise their prices today by $whatever_tarrif_trump_mentioned, and blame trump for the price hike and pocket the extra profit.

nashashmi• 1 year ago

For every week, the shoe does not sell The price goes down 10%. So very quickly you lose your margin.

aimor2• 1 year ago

Trying to summarize the summary for myself

From a $100 shoe that sells for $76:

- $24 goes overseas (22 cost, 2 freight)

- $8 goes to the US gov't (3 import, 2 Nike tax, 3 Footlocker tax)

- $33 goes to US employees or businesses (5 Nike marketing, 11 Nike expenses, 17 Footlocker expenses)

- $5 goes to Nike (11% return)

- $6 goes to Footlocker (8% return)

But now with 100% tariffs, it's a $100 shoe that sells for $100 (or a $132 shoe that sells for $100) and:

- $24 goes overseas (22 cost, 2 freight)

- $29 goes to the US gov't (22 import, 3 Nike tax, 4 Footlocker tax)

- $33 goes to US employees or businesses (5 Nike marketing, 11 Nike expenses, 17 Footlocker expenses)

- $7 goes to Nike (11% return, 7.15 exactly)

- $7 goes to Footlocker (8% return, 7.45 exactly)

And if a US shoemaker wanted to undercut the import, a Made in USA shoe that sells for $100:

- $7+ goes to the US gov't (? shoemaker tax, 3 Nike tax, 4 Footlocker tax)

- $79 goes to US employees or businesses (46 to shoemaker, 5 Nike marketing, 11 Nike expenses, 17 Footlocker expenses)

- $7 goes to Nike (11% return, 7.15 exactly)

- $7 goes to Footlocker (8% return, 7.45 exactly)

milesskorpen2• 1 year ago

The piece to add there is that all this money is getting paid by the consumer. The overseas piece doesn't change, same number of US dollars going to the other country. The $24 increase in cost is paid by the US consumer.

slg• 1 year ago

It's just a sales tax. I don't know why people opposing tariffs never talk about them in this manner because sales taxes are something people innately understand if they have spent any time in the US and "tariffs" clearly aren't as well understood.

aimor2• 1 year ago

Yes that's right. The manufacturing cost in the US would have to be $46 or less to undercut the import. So ignoring tax changes, something like...

A Made in USA shoe that sells for $100:

- $7+ goes to the US gov't (? shoemaker tax, 3 Nike tax, 4 Footlocker tax)

- $79 goes to US employees or businesses (46 to shoemaker, 5 Nike marketing, 11 Nike expenses, 17 Footlocker expenses)

- $7 goes to Nike (11% return, 7.15 exactly)

- $7 goes to Footlocker (8% return, 7.45 exactly)

barbazoo• 1 year ago

That's what I don't get. It's always phrased as the US somehow making all this money when in reality it's Americans that are paying for it. Among other reasons to be able to afford tax cuts in the future. Sure this will hurt other economies but primarily right now it seems to hurt the American economy and people the most.

singron2• 1 year ago

Just to say the obvious, they are also going to sell fewer/cheaper shoes according to the demand elasticity since the consumer price is 32% higher. Despite Nike making slightly more on a per-shoe basis, they are probably going to make less overall.

washadjeffmad• 1 year ago

I wouldn't assume that they wouldn't segment products. Nike already offers more expensive lines with higher margins to offset less profitable ones. Why should we expect them to pass on direct costs to customers?

The blog also doesn't acknowledge the externalities of shipping. Having a "Nike USA" brand that becomes their premium domestic flagship won't incur the same logistical expenses or tariffs. I may be biased because I'm from a debtor colony that understood there's no way free people can compete with slave labor, but the distaste for compensating workers is largely a classist taboo.

People are theorycrafting ways to lose, but I would only expect that from a company that was trying to signal their disdain for current trade policy, not actually run their business.

SV_BubbleTime4• 1 year ago

Is there a reason, be-it special buildings, tools, skills that shoes can not be made in the US to avoid the tariffs?

If Nike shoes exceed the cost of domestically produced shoes, isn’t that… like… kind of the point?

rsoto2• 1 year ago

Every country has optimized their own economy so it's incredibly cheap for us to import shoes, or it was. Now it is not, so sure we could try to make some cheap shoes here. But now we have to make cheap shoes, grow cheap citrus veggies, make cheap computer chips, make cheap needles etc etc.

How much capacity do you think the US has to manufacture these things? and what about the supplies?

gnopgnip• 1 year ago

You can buy made in USA sneakers like New Balance 990 series. Generally all the materials except the sole are US sourced. Retails for $200 a pair. What kind of sneakers do you buy?

Running a manufacturing business in the US is more expensive. Consumers largely won't pay more, it's a limited market. The machinery for molding soles only makes economical sense at a large scale.

nearbuy• 1 year ago

This isn't what it says in the thread. It's saying Nike and retailers need to maintain their markup rate on their unit cost.

And if Footlocker purchases Nike shoes for $75, then they retail them for $150. Everyone needs to fixed percentages to avoid losses.

The problem with your breakdown is you're mixing unit costs and net profit in a way that doesn't work. For example, say after increasing the price in accordance with your summary, the volume of sales halved (just to pick an easy number). Then the $17 marked as "Footlocker expenses" increases, likely to around $34, and Footlocker's profit becomes -$10. The absolute expenses haven't changed. They're still paying the same amount for their employees and storefronts. But with half as many shoes sold, the expense per shoe is doubled.

It's not just sales volume that affects the $17. Other costs like credit card fees or shrink scale with the unit cost as well.

Suppafly4• 1 year ago

And if a US shoemaker wanted to undercut the import, a Made in USA shoe that sells for $100:

Somewhere in there you have to also figure in the cost of the fact that shoe factories and the suppliers of the goods to make shoes also don't exist in the US and will cost millions, and years, to get setup.

SoftTalker5• 1 year ago

As the US has switched to a post-industrial economy, a lot of the wage growth has been in knowledge intensive services—medicine, law, engineering.

I.e. bullshit jobs.

hackeraccount• 1 year ago

Hey! There's no need to make fun of my job!

Gothmog692• 1 year ago

I mean only one of those is a bullshit job.

ck2• 1 year ago

I was going to link the excellent solereview article but it looks like that's exactly what the post is about.

I used to be able to buy good running shoes on clearance every year at $30-$50

Even through 2020-2021 or so

But not anymore, now even on "clearance" they almost never drop below $100 and never ever to $50

yapyap2• 1 year ago

This derekguy guy always has the best posts clothing related afaik.

Also > Again, it's a popular misconception that all overseas production is sweatshops. Production can be done ethically abroad and still be relatively cheap because the cost of living is not the same everywhere. I encourage you to note assume that every Asian worker is a slave

No not necessarily slave slaves but I do assume they’re wage slaves, at least the line workers, the higher ups will be compensated a bit better I’m sure.

xpe• 1 year ago

Are comfortable and repairable shoes possible and sensible from an economic point of view? Any recommendations?

crazygringo5• 1 year ago

Classic leather dress shoes can last decades and can be resoled many times.

But most people don't consider them comfortable. More the opposite.

But no, the foam and rubber modern "comfortable" shoes are made of are not repairable. Fundamentally, the foam or other sole material simply breaks down. The rubber wears away. And the woven and plastic materials the upper are made of fray, lose padding, and otherwise break down as well.

codazoda• 1 year ago

I don't think they are right now.

I have very wide feet, so much so that I've seriously considered manufacturing my own shoes (possibly with a 3D printer). Shoe makers and repair shops do exist but they are becoming quite rare.

My understanding is that a good quality repairable shoe is about $500 or about 5x the price of the $100 shoe we're talking about. Repairing it is labor intensive and adds even more to that cost. So, I can buy at least 5 pairs of $100 shoes for the price of a good quality and repairable shoe and that doesn't consider the repair costs.

singron2• 1 year ago

I've used shoe goo to get more life out of shoes. It's marketed as an adhesive, but you can apply it to the bottom of the sole to rebuild thickness to the tread. A single tube could be used for dozens of repairs. After that for me, usually the textiles in the upper fray from the inside out, and I just ignore it until it becomes externally visible or uncomfortable.

I don't think more extensive repairs are economical, and you are better off wearing shoes you like until they disintegrate. There is a bit of mythology about buying expensive boots and repairing them in the hope that it's more economical, but it's really not: https://mastodon.social/@danluu/111068432320682422

TrackerFF• 1 year ago

I've had a couple of leather shoes (goodyear welted oxfords) repaired, and the last pair cost me around $100 to get re-soled. It was a local cobbler that has a very, very small shop.

I mean if you pay $300 and up for a pair of shoes, it could make sense. If you pay $100 for a pair, you might as well just purchase a new pair. In my case I re-sole the shoes because my shoes fit me well, and they're more on the high-end and thus I've paid a bit for them at the time of purchase. Makes sense for me to re-sole a pair of $1k shoes, rather than purchase a new pair.

To get the prices down, you'd need a lot more cobblers though. And there just aren't many going to trade school for that. It is very much a "artisanal" craft today, akin to tailoring.

H1Supreme• 1 year ago

I have 4 pairs of Allen Edmonds shoes. The oldest pair is 6 or 7 years old. With some light care (conditioning / polishing) they've held up very well. To address another comment about comfort: They're quite uncomfortable at first. Over time the leather (and cork insoles) mold to your foot. Making them comfortable.

These are leather dress shoes though. As far as I know, this doesn't exist in the athletic shoe world. Considering the materials used in athletic shoes, I don't know how a "repairable" athletic shoe could exist without some serious re-engineering.

gorbypark• 1 year ago

Comfortable is of course subjective, but my current go to for "fancy" shoes is Meermin. For about the price of a pair of higher end Nike or Adidas shoes that are just foam glued to fabric, you can get a pair of "traditionally made" Goodyear welted leather shoes. Meermin, for example, still does some manufacturing steps in China. As far as I know they sew together the leather pieces in China and then ship them to Spain for lasting / final assembly / polishing.

It goes to show how the big athletic shoe companies are taking the piss. Of course they have middlemen and retailers and whatnot who need to take their cut, but if I can buy a pair of nice leather shoes, made from leather from UK/French/Italian tanneries, with about a million steps done by a human, for the same price as some glued together foam and fabric...something is wrong.

sitkack2• 1 year ago

Article has absolutely nothing to do with the actual cost of shoes. Just the simple cost of model of manufacture -> distributor -> retailer. Nothingburger.

asdefghyk• 1 year ago

my guess, less than $5

chrisco2554• 1 year ago

This is closer to correct than the article's claims. You can buy sneakers for $3 on Alibaba, as an individual: https://www.alibaba.com/product-detail/Cheap-New-Trendy-Leat...

e44858• 1 year ago

Or $0.80 if you make a big order of 100k.

crmi2• 1 year ago

Interesting article but fails to mention about Nike big pivot to DTC around covid times. So will likely be taking home a lot more than 9% (or _were_ up til last year)

amotinga• 1 year ago

what is DTC?

asadotzler• 1 year ago

probably direct to consumer, website sales and the like.

crmi2• 1 year ago

Yes, direct to consumer

hed• 1 year ago

Direct To Consumer. Selling directly to their customers on Nike.com disintermediating Foot Locker or another distributor/retailer network.

jimt1234• 1 year ago

Sorta related: Those Crocs/clogs shoes have been extremely popular for a few years now. ... I've always wondered how much it costs to make that type of shoes (Crocs/clogs) - it can't cost more than $1 to make most of them; they're just injection-molded, right?

josefresco• 1 year ago

You can buy Croc knockoffs at the "Dollar Store" yet Crocs still exists. Why? Is it purely first-mover advantage/brand or is there an engineering edge?

mkipper• 1 year ago

There are _some_ differences in quality, but I think they're pretty minor.

I recently visited the Philippines and a friend bought some knockoff Crocs at a market. The little rivet thing holding the strap to the shoe had the logo printed right on the exposed plastic, and after a few days, the logo was mostly scratched off. But my wife's Crocs that she bought a decade ago still look fine because there's some sort of sealant on top of the logo.

Is that worth an 800% markup? Probably not. But the knockoffs do cut some corners that the genuine articles don't.

lolinder7• 1 year ago

I had a pair of knockoffs that were passable for limited purposes but certainly didn't pass muster as my primary shoe. I thought that the style just wasn't my thing. Then I got a pair of real Crocs and they very quickly became my go to for most purposes.

I don't know enough about shoes to explain why, but the difference in comfort level was huge.

swah• 1 year ago

I don't know about Crocs but brazilian flip-flops "Havaianas" never lost market share even though it feels so trivial to clone it.

The only two modes of failure of this sandal is "drying up" after a couple years and broken thong straps (yes, 3rd parties sell those as replacements..)

I guess they make sure they have cheap offerings and are always investing in design and marketing so no one can enter this market..

adamweld• 1 year ago

The material used by genuine Crocs seems to last much longer. My brother bought some knock-offs at the same time that I picked up a new pair. He wore through the soles in about two years while mine are still kicking after almost 8 years of near-daily use.

You can get the genuine ones for $18 to $35 on ebay depending on the color, so while I'm sure you can save some on clones it's not worth it for the durability and comfort.

apwell234• 1 year ago

knockoff crocs suck. i have them. why ?

apwell234• 1 year ago

i have them. knockoff crocs suck. why ?

skirge• 1 year ago

cost != value and value != price. and consider alternative cost - highly trained workforce making shoes is a waste of resources.

logifail5• 1 year ago

According to https://news.ycombinator.com/item?id=41283368 we should be linking to the primary source.

Q: Is there a specific reason* that this thread links to threadreaderapp?

* other than politics, which we try Really Hard not to bring into HN...

devb• 1 year ago

One great reason is that you need an account on X to read the thread. I deleted my account many months ago, along with many, many other people.

logifail5• 1 year ago

I've just opened https://x.com/dieworkwear in a private browsing window and - from here at least - I don't appear to need an account.

ForOldHack7• 1 year ago

Thank you.

octernion• 1 year ago

afaik you still need an account to read more than the first post in a thread, and many of us don't have twitter accounts any longer

axegon_• 1 year ago

There was an interview with the local marketing managers for Coca Cola and Pepsi when I was a kid. I vaguely remember it (and also the idea was somewhat foreign to me since the world had just started opening for eastern Europe and it was the first time many of us heard the names such as Coca Cola, McDonald's, etc). The one thing that stood out was the Pepsi manager raging about campaigns, failed products and whatnot. The Coca Cola manager calmy looked at him and said: "Sir... Look at our product... Who in their right mind would pay for a rusty-colored liquid as a beverage? Absolutely no one. It's all about the advertisement".

Same story here - would you buy a pair of shoes from anyone, seeing the horrible conditions they work in, sleep deprivation and poverty if you knew they'd still get close to nothing? Probably not. You see a fancy store (or website these days), you see a product you like and you're invited to open up your wallet for a fancy pair of shoes. Deep down you still know they came from the people working in horrible conditions but, you know, out of sight, out of mind. And thus, you are willing to pay the extra price.

sys32768• 1 year ago

I prefer leather shoes that last five years or more, and will happily spend $200+ for them.

_diyar4• 1 year ago

How is this relevant to the article?

int_19h3• 1 year ago

That is great for those who can afford $200+ shoes, not so much for those who're already struggling to make ends meet. Sure, in principle, they will save more long term. But it'll take time for those savings to realize, and they need shoes now (to wear them to work, for one).

raincom• 1 year ago

I worked in the retail; it is the shittiest job I ever had. I was given an abnormal schedule: two days closing, one day opening, one mid shift (and I should work either Saturday or Sunday). The churn is really high: people leave even if they find a better yet shitty job. Which jobs do you want to create in US? Retail jobs or manufacturing jobs?

chrisco2554• 1 year ago

Both!

const_cast3• 1 year ago

Given the manufacturing is currently being done by people making much less than US minimum wage, I’d have to say retail!

People forget why manufacturing was moved out of the US. Manufacturing jobs sucked major ass. Then they sucked less ass, when unions started gaining power. Then the companies saw their employees had prosperity, said “fuck you”, and left.

We’ve crippled unions to such an absurd degree that the reality is that, if manufacturing came back, the quality of life for average Americans would go down significantly. It’s not 1955 - you’re out of your goddamn mind if you think a factory worker can maintain the quality of life now, let alone afford a suburban home on one income like in the past.

beeflet11• 1 year ago

Because of tarrifs, demand for local manufacturing increases and manufacturing wages will be greater than they are currently abroad due to newly constrained supply.

Okay, then we'll have unions then. I don't see what the issue is here. I have heard this reasoning several times, even in person, it seems to misunderstand the action of protectionism in the first place.

You can't have an industrial economy if workers don't have any leverage to demand sufficient wages or if unions have so much power that they bring the balance of labor negotiations to unprofitability.

I don't think manufacturing jobs suck ass. They probably aren't great for your physical health, but it is better for society spiritually in the long term to have the majority of society focused on producing something real rather than just having an endless network of fake jobs as a means of wealth distribution.

The factory worker of today can't afford anything because they are competing with third world wageslaves to outsource manufacturing to our geopolitical rivals.

silexia2• 1 year ago

Unions crippled themselves. Government employees unions destroyed the US government by getting the politicians in their pocket so much that no union member can be fired or held accountable in any way, and that led directly to Doge. Corporate unions were so abusive that companies were forced to move overseas, losing American jobs.

Each worker can negotiate easily on their own behalf or simply work elsewhere. Unions are unnecessary and always end up corrupt and wasteful.

imgabe• 1 year ago

This is a false dichotomy. Creating manufacturing jobs doesn’t mean there are no retail jobs. We should have both. Different people have different preferences. Even the same person at different times in different situations. Why limit ourselves to one option?

zarzavat• 1 year ago

Manufacturing jobs in Asia (e.g. making shoes) have much higher churn than retail jobs in Asia. That shit is hard work, but well paid by local standards.

Manufacturing also requires young people. You can't work in a factory in your 40s. The west is demographically ill-suited for those jobs.

themaninthedark3• 1 year ago

I agree with sibling post saying both but with a note.

(Most)Shitty job conditions can only exist if there is an abundance of labor; why can fast food joints get away with irregular scheduling? If the supply of labor is tight, jobs have to add bonuses to keep workers.

Why is health insurance tied to jobs in the US? Because during WWII, the government set limits on wages so companies started adding insurance and other items to attract workers.

During the GFC, what did companies do after cutting workers? Start cutting benefits, the workers couldn't walk since no one was hiring.

Look at pensions, they went away in the 80's. If you google why they went away, the answer is 401k became availible, however: https://en.wikipedia.org/wiki/Early_1980s_recession

Even the “father of the 401(k),” Ted Benna, tells The Journal with some regret that he “helped open the door for Wall Street to make even more money than they were already making.” Other experts agree: On its blog, the Economic Policy Institute recently declared 401(k)s “a poor substitute” for the defined benefit pension plans many workers primarily relied on, which provide a fixed payout for employees at retirement, and which have now become increasingly rare. Nowadays, “just 13% of all private-sector workers have a traditional pension, compared with 38% in 1979,” reports The Journal.

https://www.cnbc.com/2017/01/04/a-brief-history-of-the-401k-...

https://time.com/archive/6686654/a-brief-history-of-the-401k...

phkahler2• 1 year ago

I've always wondered why the supply chain has exponential price increase at each step. The example given (guessed at) is the factory produces the shoe for $12.5 and sells it to Nike for $25. Nike then sells it to Footlocker for $50 and they then sell to a customer for $100. Everyone expects to mark up their costs by about 100 percent. Why is that the case? Even if we say the markup isn't 100 percent, why is it a percentage of cost at all? If the shoe factory can make $12 then why can't Nike and Footlocker both make $12 and retail the shoe for $50?

I'm not saying things should be different, just wondering why it is the way it is. If Footlocker was also selling some cheapo shoe for $50 presumably they do the same amount of work to bring that to the store. Are they only paying $25 for those? Why does it cost half for them to handle a cheaper shoe?

sandermvanvliet• 1 year ago

Isn’t this simply taking advantage of what the market is willing to pay?

gnfedhjmm2• 1 year ago

Because then one unit of thing is theoretically one standard deviation from being profitable. So you can have a break even price.

phkahler2• 1 year ago

Can you clarify that? It sounds like there may be theory behind it, or are you trolling?

yibg• 1 year ago

The numbers at each step is only considering the marginal cost. There are various overheads that are fixed, some described in the article. And of the day the actual profit at each step isn’t necessarily very high.

audunw• 1 year ago

On thing you have to consider is the scale at which these shoes are sold at each step. From the factory they're processed and shipped in giant containers. The overhead of handling each shoe is fairly small at that stage.

When it comes to the retailer, there's a huge increase in the amount of work and overhead for each shoe sold. And the labor cost for that work is much higher than on the Asian side of the supply chain. That's also where you get potential waste from returns and discarded inventory and such. The retailer also have their own marketing costs.

I don't find it strange at all that the retailer expects a 100% markup.

blitzar3• 1 year ago

Real estate is insanely expensive - you have to sell a lot of shoes with your "100% markup" to make rent.

The flip side however - e-commerce with its totally different cost structure and same traditional RRP as brick and mortar retail - should be - a gift from above for retailers.

anomaly_3• 1 year ago

because businesses have overheads? and customers have brand preferences that stop (or limit the success of) Footlocker just selling generic models without Nike's involvement?

hattmall4• 1 year ago

It's more of a work backwards thing. The price is set by demand, what the market will bear, etc. Then for well established supply chain / commodity goods overhead tends to rise to meet COGS. The reason is that there exists profit taking at every level of "overhead" but when the cost of revenue exceeds the cost of goods it becomes a marker of inefficiency. In the same way when manufacturers recognize that their cost are less than the retailers overhead to generate sales they see room to raise costs so markets trend to 50/50.

But consider Footlocker sells a lot of other shoes for much less than Nikes. Those shoes don't cost any less to manufacturer and depending on the brand are just as well established so the 50/50 ratio still applies. It's just that at each level the overhead adjusts to meet the ratio over time.

For fringe brands the retailers markup can be huge 10x or more.

mcosta• 1 year ago

when the cost of revenue exceeds the cost of goods it becomes a marker of inefficiency

Welcome to Europe

energy123• 1 year ago

Nike's margin is brand.

Footlocker probably doesn't have much of a margin, the price they charge is due more to high labor and real estate costs in the US which are being passed on.

timewizard• 1 year ago

chain has exponential price increase at each step.

The amount of risk increases at each step.

That $24 in "discounts." Almost certainly some amount of that is "shrinkage." Storefronts are expensive in more ways than one.

You could take your monthly rent and costs and then divide by size of a product times the average hold time before sale. Each item has to pay this price plus whatever you want in profit to "earn" it's place in your store. That time multiplier gets worse at each step with an extra kick in the behind if you took those items on credit.

The manufacturer holds the product for almost no time. The retailer may hold it for months.

hnburnsy4• 1 year ago

The thread was kind of hand wavy over the "$24* discount" for Footlocker? From the linked article...

Footlocker’s purchase price (read footnote #3) for every sale of $100 shows up as $66 in their financial reports, and not $50. In plain terms, Footlocker sells its merchandise for a 24% discount on the average.

So $100 was never the sale price, just some made up, hoped for number that only appears on the shoe box, and not on anyone's financial statements. Really this should be Footlocker makes $6 on selling a $66 sneaker, for a margin of ~9%.

BTW, both Footlocker and Dick's have gross margins ~30% but Dick's has an operating margin around 12% while FL is 1-2%. Clearly FL is an inferior retailer.

And the linked article does cover Nike selling directly...

And what happens if brands skip the retailers and operate their own stores? adidas and Nike already have their own shops, but direct-to-customer retail comes with its set of challenges. Brands will incur costs otherwise absent in the wholesale business model; spends like leasing+manpower+operational costs, store set-up and periodic re-modelling cost, the entire risk of inventory, and costs associated with warehousing and distribution. That’s only at the store level, there will be additional off-site resources needed in the back-end to support retail operations. The brands will make some extra margin selling out of their own stores, but the best case scenario will be an additional 10%, which is slightly above what a highly evolved retailer like Footlocker makes annually after taxes.

I would argue that a great deal of selling today is direct, no stores involved at all.

timothyduong• 1 year ago

“ I would argue that a great deal of selling today is direct, no stores involved at all.”

That assumption burnt the previous Nike CEO post COVID.

Spivak• 1 year ago

Yep, direct from the manufacturer— no. Direct from the retailer without touching a physical store— yes.

notatoad2• 1 year ago

So $100 was never the sale price, just some made up, hoped for number that only appears on the shoe box, and not on anyone's financial statements. Really this should be Footlocker makes $6 on selling a $66 sneaker, for a margin of ~9%.

yes. but any arguments you see in favour of onshoring manufacturing would use undiscounted list prices, so it makes sense to start from that place.

ForOldHack7• 1 year ago

Well, Since I am close to a Shoe Palace, I just walked in and talked to the sales man. He likes selling New Balance, and the price ranges from $34 to $167, and the $167 is a discount of 33%. I talked to him long enough that the assistant manager came over, and both of the really were ashamed at shoes made in Vietnam, and Cambodia, they got it, and I told them that

https://allamerican.org/investigation/new-balance/

soared• 1 year ago

I work in marketing for a large number of e-commerce brands across a variety of verticals, including shoes. Brand direct on Nikes website is bugged, but is absolutely dwarfed by sales in brick and mortar retail stores. Think about target/walmart/dicks/big5/etc and then think about just Nike.

hnburnsy4• 1 year ago

45% of Nike's sales in 2024 were DTC, see chart above.

throwaway20374• 1 year ago

    > BTW, both Footlocker and Dick's have gross margins ~30% but Dick's has an operating margin around 12% while FL is 1-2%. Clearly FL is an inferior retailer.

ELI5: What is the difference between gross margin and operating margin? Is operating margin the same as profit margin?

acrooks• 1 year ago

Maybe easiest to explain from a software perspective.

So if you build a SaaS app, your company will incur a number of costs. You need to pay AWS for hosting, your support team, your sales team, your annual team retreat to Mexico, etc.

When you start measuring your profitability you then will separately measure the profitability of your product vs. your business.

The profitability of the product is your gross margin - essentially your revenue minus your cost of goods sold (COGS). Not all of your business expenses fall into here - only the costs that directly relate to supporting the product.

So… - Your annual team retreat won’t hit your gross margin: this cost isn’t essential to supporting the product - Your AWS costs will hit your gross margin (if you turned off AWS tomorrow, your product stops working) - Your Slack bill does not hit gross margin - Your product & engineering team normally doesn’t hit gross margin, but DevOps does (because DevOps is seen as essential to supporting the product while R&D is not)

Now in reality it does get a bit more messy. Businesses might allocate a % of engineering costs to GM to account for essential maintenance and bugfixes.

So the way to look at it is: what costs are essential to the continued delivery of the product and what are nice-to-have?

And then operating margin essentially considers all of the non capital costs. It’s a more comprehensive view of all the businesses revenue and costs.

For a smaller business it’s very normal for operating margin to be razor thin or even negative. Because just one or two engineers could cost more than your entire revenue.

But this entire concept is why software companies have historically been able to be unprofitable for so long. A business that’s losing a ton of money every month might only be losing that money because it’s investing very heavily in R&D. Or maybe it just moved into a new

As you scale the relative impact of a lot of those costs will go down significantly - e.g. your engineering team cost will stop being 300% of your revenue and will start being 20% (you don’t hire engineers linearly with growth).

So the theory is that if you can find a software that has: - a big market - great gross margin

Then with just some upfront cash investment you can provide the business enough runway to grow the revenue to the point where the impact of some of these expenses becomes very small. At a certain scale, a product with 50%+ gross margin will be producing so much cash that it can pay for the rest of your operational expenses without further investment.

ericmcer• 1 year ago

I agree, isn't most selling online nowadays?

This also doesn't make sense because buying shoes from Nike.com costs roughly the same as Footlocker. Is Nike taking that 50% cut in this case? Article definitely hand waves away a ton of the complexity around tariffs and global trade.

My favorite line is: "Asian manufacturing in Asia produces US jobs. You go to Footlocker to buy a pair of $100 shoes because you can afford them. This creates jobs for the Footlocker employees".

It feels like people have completely flipped their views on offshoring manufacturing in the last 6 months. If you go back 10 years ago we were barraged with stories about Foxconn, corporations exploiting workers in developing nations, and scenes of abandoned manufacturing cities like Detroit. The popular view was that we needed to build our manufacturing base back up and that using developing nations to pump out cheap disposable goods was bad for everyone except giant corporations.

Now we are getting told that corporations offshoring all their labor to developing nations is good, and that the USA should not do manufacturing. This article even asserts that we will lose jobs if we produce things domestically.

I don't agree with the ham-fisted bullying approach Trump is using, but I do agree with the philosophical underpinning. Offshoring all our manufacturing is not a good long term strategy and will slowly erode the value of labor and our economy.

hnburnsy4• 1 year ago

The quoted article from the thread is from 2016, so yeah more selling is online and direct from the manufacturers.

AtlasBarfed• 1 year ago

"Everyone needs a fixed percentage to make money"

I get they WANT to, and it's what a shoe retail strives for, but this isn't accurate.

Cars for example aren't 100% marked up. That would be insanity.

bluedino3• 1 year ago

Shoe dealerships don't sell used shoes and have service/parts departments where they make most of their money

anomaly_3• 1 year ago

Because cars are a high $ item vs. shoes. A business's overheads don't scale linearly with item price, so it's possible for a car mfg to achieve a similar net profit margin to a shoe mfg but with substantially lower gross profit margins.

bluedino3• 1 year ago

What about the $25 shoes at Walmart?

markus_zhang4• 1 year ago

I hope the elites of US are not thinking about moving shoe-making back to the US because it doesn't make sense.

I'm sure (I hope, actually) that some policymakers, or some researchers, have done some conclusive researches about -- give X years into the future, and let's see we do not want to disrupt the current social-economic reality too much (no revolution, no major wealth re-distribution, no world wars, etc.), which industries can we bring back, and into which state, and sell its products into which countries, realistically.

bloppe3• 1 year ago

The opinions of "elites" simply don't matter. There's only one guy who matters when it comes to policy now. And he's not known for his thinking abilities

markus_zhang4• 1 year ago

If the elites don't disagree with him I'd say they probably "in average" agree with him. Trump is just one man.

booleandilemma• 1 year ago

You don't actually think he's making these decisions himself do you? He has advisors for these things.

codexb• 1 year ago

It doesn't make financial sense when the tax policy of the US is to tax domestic companies that produce things but not foreign companies that produce things and benefit from selling them in the US market.

We don't need to do research to decide what makes "sense". The market will figure out what makes financial sense themselves. The only thing we need to know is what the tax rate for foreign producers should be so that domestic companies are not the only ones shouldering the federal tax burden.

2muchcoffeeman• 1 year ago

Once I was in the US and bought a pair of New Balance that were made in USA. I had the exact same model made in Vietnam or Indonesia.

The Asian made shoe of the same model out lasted the US shoe by a couple years. The US made started falling apart less than a year in.

christkv• 1 year ago

Relatively easy stuff like shoes can be made in a bunch of countries and that production will just move to whoever has the best tariff deal at the end of all of this.

More interesting will be stuff like electronic components. Most of the cheap versions are all made in China. More expensive versions can be sourced in Japan, Taiwan and Korea (likely to do tariff deals). I think we might be looking at the end of very cheap electronics for awhile.

ForOldHack7• 1 year ago

"I encourage you to note assume that every Asian worker is a slave." I do NOTE, that I was on Korea for 18 months, and saw over 20 factories, and knew a few people that worked there. They were making 1/10 of the minimum wage in America at the time, $0.75 vs $7.50, Today they are making $6.94, so I would assume that They are making few shoes in Korea.

"While it's difficult to pinpoint exactly which country pays the absolute least for shoe manufacturing, countries like Vietnam and Cambodia are known for having lower labor costs and are major footwear exporters, making them likely to be at the lower end of the wage scale for shoe production."

In Cambodia, they pay $208 per month, which is assuming a 160 hour work month, which I guarantee is the bare minimum which gives them $1.30 in wages per hour.

"In Vietnam, shoe manufacturing workers typically earn wages that are significantly below a living wage, though some companies affiliated with the Fair Labor Association (FLA) pay double the minimum wage."

In Vietnam they pay $68/ month, which is $0.42 and 1/2 cents an hour.

The premise of the article, and the statistics they use are all based on preported manufactures claims, not the reality that exists in that country.

I would dismiss this article as pure fantasy.

JackYoustra• 1 year ago

I mean, unless you think it's forced labor it's better than the alternative

doctorpangloss5• 1 year ago

It is pure fantasy.

Pray tell, if they aren’t slaves, are they free to leave, and where to? What an asshole.

decimalenough7• 1 year ago

I would dismiss this article as pure fantasy.

Why? The article starts from the point where Nike pays $25 per shoe boarded into a container on a boat, where that number covers all expenses until that point. Yes, this includes the shoe workers' wages, but it also has the factory construction and maintenance, manufacturing equipment, the inputs that go into the shoe, transport to get the shoes packed into a container and to the port, etc etc.

hattmall4• 1 year ago

Because $25 per "pair" of shoes is absurd. That's Nike "juking" the stats to make it look like they pay far more than they do per pair of shoes. For one thing, as a consumer you can buy individually shoes that are at least as good of quality as any Nike Shoe for anywhere from $8-$12 delivered. So the idea that Nike, in bulk, is running factories that are known to be questionable and paying $25 per shoe is "pure fantasy". Just based on known labor rates and material costs it's safe to say $4 on the high end if you factor in a bunch of operational and brand based overhead.

listless• 1 year ago

“I encourage you to not assume that every Asian worker is a slave."

That’s a hell of a dodge. The problem isn’t that these workers are mistreated, it’s that you’re a racist.

freddie_mercury• 1 year ago

Vietnam does not pay $68/month. Where did you get your made up numbers?

Source: brother works in a Nike factory in Vietnam; am acquaintances with the manager of an Adidas factory in Vietnam; and know that the legal minimum wage in Vietnam -- which is definitely enforced on foreign factories -- is far above $68/month.

My brother at the Nike factory makes almost 10x that assembling women's shoes.

Someone working part time at a convience store makes 3-4x your claimed number.

Suppafly4• 1 year ago

In Cambodia, they pay $208 per month, which is assuming a 160 hour work month, which I guarantee is the bare minimum which gives them $1.30 in wages per hour.

That means nothing without knowing what other jobs pay and what the overall cost of living is. It honestly feels a little dishonest to convert things to USD without either putting it in perspective to the rest of their costs or adjusting it to a value that reflects the spending power of that amount of money. Does $1.30 buy them one hamburger or would it buy them 10+?

le-mark• 1 year ago

Clearly shoes and textiles in general are extremely difficult to automate, but you only have to build one shoe building robot, and copy it. Why hasn’t this been done? Expecting a “too hard” answer honestly, but is it really?

FredPret3• 1 year ago

Manufacturing machines are hard to invent, and harder to keep running right, and even harder to network together into an effective factory. You need skilled operators, technicians, and engineers to design and run a factory.

You also need to put down a big whack of capital upfront and will see a return years down the line, hopefully.

With low enough wages, it could easily be financially better to rent a big building in the third world and staff it with actual people.

dbacar• 1 year ago

"I encourage you to note assume that every Asian worker is a slave. " The tone of this sentence, I dont know, a bit disturbing.

486sx33• 1 year ago

Now they’ll just have to make shoes for $11 or new balance will have to come back to North American manufacturing and make shoes for $40 wholesale

Shipping , customs , duty , port fees , transportation , packaging that can survive across the ocean should all be things that make the product unrealistic to make outside North America, not to mention environmental tariffs that should be applied to products made in Asia.

cryptoegorophy• 1 year ago

I recently bought shoes while in Thailand on lazada $1.5 with shipping. Of course the quality was terrible and all, but I just don’t get it how they could cost less than $1. My guess is labor camps.

stevage4• 1 year ago

First, adding $26 tariff at the port doesn't just add $26 to the final price. Everything here works off of percentages.

This doesn't have to be the case though, right? It seems very weird that when you jack up tariffs, some middleman in America is seeing their profit jump.

dcow• 1 year ago

I wish the discussion included the margins the fashion industry makes. In the labor sector, 10%-20% margin is respectable. But in the fashion and consumer goods sector at least 30% margins are expected. 80% margins are normal for “luxury” goods, which I’m sure is the bracket Nike falls into. I wish margins were included in the thread. It’s only true that everything increases in cost if you also have to keep the same margins.

hyperpape• 1 year ago

There are profit margins in the thread. They’re a lot lower than what you described.

anomaly_3• 1 year ago

OP will be talking about gross profit not net, and also totally ignoring the substantial overhead investments in brand marketing, customer service, stores, etc, that luxury goods brands have to make.

numitus• 1 year ago

This shows how non-automated retail is. on the production line, workers assemble the crosses in 5 minutes. And when selling, the courier will spend 15 minutes looking for your house to give it to you. It is reason why production is 1/4 of the price

subsubzero2• 1 year ago

A few things to unpack here:

Lets say a nike shoe costs $120 or so today(searching air jordans in google lists a huge number of shoes at that price point), in my mind this is quite cheap as I wanted a pair of Air Jordans in 1990 and they were the same price, $120 for kids shoes roughly 35 years ago. Adjusted for inflation thats roughly $303 USD in 2025 dollars. So basically through outsourcing manufacturing to China and supply chain efficiencies Nike has brought down their product price by roughly 1/3.

Another thing to think about is the insane amount of money offered to athletes in sponsorship deals, I believe Jordan was one of the first athletes to command big money from a company(they made a movie about it a few years ago). This cost paying hundreds of athletes millions a year is a huge cost on Nikes bottom line.

In addition to the sponsorships some athletes have profit sharing (Jordan for sure) so a percentage of sales go to said athlete. Throw in marketing and you have another huge cost.

Would I rather see manufacturing jobs come back to the US and Nike curtail sponsorship money and profit sharing, hell yes. This is easy money to get back and would bring tens of thousands of jobs back to this country, if people were snapping up air jordans for the equivalent of $300 a pair back in the 90's they will do the same in this day and age. And if don't want to cut back sponsorship money, just raise the shoe prices, things are really really cheap compared to what they cost 30 years ago and Nike would still make a hefty profit.

Fun fact - I always buy new balance shoes that are made in usa, they sell both outsourced and domestic production and would rather have my money go to a US worker. At the very least I hope to see other companies do this so I have a choice, most give no choice and force consumers to buy Chinese made products.

hattmall4• 1 year ago

I mean Nike didn't work to lower the price, the demand for Jordans is just different and most people buying Jordans today also bought them in the 90s and are comfortable at $120. If Nike could move them at $300 they would. Jordans remain popular but the reasoning is partially their price points, they don't at all have the power they did in the 90s when every kid wanted "to be like Mike".

trhway• 1 year ago

It is better to distribute or sell shoes than to make them. It is even better to finance/own the making of shoes or even better - the selling/distribution of them. That is Economy 101, originally known as Das Kapital. The people who read those rules wrong call themselves marxists and insist on everyone producing a lot of the same standard shoes, and selling them to people at cost, $25. The people who read those rules right try to find how and where to make a factory, distribution center or retail store, or at least where to get a share of it :)

xivzgrev2• 1 year ago

The old adage that distributors mark up 100%, and then retailers another 100%, rings true here

Nike is the distributor in this case

mannyv• 1 year ago

Assuming it's not a new material, the cost of shoes are more like $3-$5, not $22.

neonate• 1 year ago

https://threadreaderapp.com/thread/1909741170953273353.html

hy4000days• 1 year ago

Just the other day, I got a pair of shoes at Walmart for TREE FITTY.

The most comfortable pair of shoes I own are also from Walmart and they cost less than twenty bucks.

How do my $3.50 shoes from Walmart fit into this picture that justifies why Nikes are $100?

This article fails the smell test. Or maybe it’s Nike’s business model that is failing the smell test, I’m unsure.

Also, anybody commenting who claims they “need” a pair of Nikes for their special feet should try being desperately unemployed and borderline homeless for a while.

You don’t “need” anything.

marenkay7• 1 year ago

This makes a good argument against centralized production and knowledge. It would economically be much more reasonable if any good could be produced anywhere at any time. Smaller production facilities for localized sourcing. Would IMHO also be much more in line with a free market. Everyone would be free to source goods in any country or location of their choice. Coupled with open knowledge this could be a truly free market.

But will never happen because currently free market means one business is free to dominate and control a market.

ta8645• 1 year ago

It sounds like you're advocating for a centrally planned market that allocates resources according to a grand, rational vision. A free market will by definition be messy, sometimes inefficient, adhoc, and defy any notion of a grand vision. You have to trust the free market to produce the best results in the long run, and to be the most responsive to change (opportunity).

marenkay7• 1 year ago

Not really. The opposite. The current market is centralized a lot more than people want to see or admit. I had trust in the free market for a long time but it has not really materialized the best results. As can be seen by the current state of affairs. Everyone fighting over who gets to have money and production is not freedom, it's a war without guns.

Just to make this clear, a truly free market would be desirable but I don't see it materialize on this world.

stahtops2• 1 year ago

The “free market” cannot exist. It’s impossible.

All you can ever do is trade manipulation. By who and to what agenda.

TulliusCicero4• 1 year ago

You're asking for decentralization. There's a reason you often get centralization in industries: higher productivity due to network effects and/or economies of scale. Even within China this is true, as some areas are particularly known for manufacturing (or specific types of manufacturing).

Spreading things out sound good until you realize it's doubled your costs or halved your productivity.

marenkay7• 1 year ago

But I think we're missing an important point here: moving production to low cost environments just moves costs from business costs into external costs, putting them on society.

As for productivity, I think that's an issue that could be addressed but people generally avoid the answer to the why question.

beeflet11• 1 year ago

It will never happen because of economies of scale.

What type of intervention of the free market do you approve of as an alternative that would incentivize local production over economies of scale? It essentially comes down to tarrifs and protectionism.

Free market means voluntarism. You say that consumers ought to have the freedom to source goods anywhere, but the only way to preserve this "freedom" is to either force producers to operate in unprofitable conditions (which is not stable-state) or force consumers to pay a premium for those goods.

marenkay7• 1 year ago

If a product becomes unstable due to increased competition it's not exactly been stable before. Also the whole premium is quite off. You got good items for fair prices before factories started producing bread. Often at higher quality. I'm old enough to remember. Honestly seems like the current market is only working because of regulation and protections of all kinds. That to me is a clear sign of volatility.

pipeline_peak• 1 year ago

Depends how small the child’s fingers are.

danwills• 1 year ago

Thanks for that threadreaderapp link neonate!

For some reason there's no reply-link to your post, but this is the first time in a very long time I've even read a twitter thread because of how much more pleasant it was at threadreaderapp!

Very interesting analysis/breakdown of the various layers of costs as well!

11mariom• 1 year ago

For me it just proves how ineffective big companies are…

mock-possum• 1 year ago

And how much of a sucker consumers who care about the social clout of brands are

kqr• 1 year ago

Damn! I tried to answer the question without looking at the thread and arrived at a unit cost of 28 % of the retail price, after deducting reasonable guesses at VAT, store margin, shipping, etc. Fairly close to the quoted 25 %.

Fermi estimation is awesome and if you're one of today's lucky 10,000 who haven't heard of it, this is your day!

ineedaj0b• 1 year ago

i've seen certain groups defend war (really cannot imagine this) and now i'm hearing from the same group i'm a part of, well it's okay to off-shore all this because the president doesn't like offshoring? for years fashion forums have bemoaned the offshoring of american clothing. if the president said he supported communism, would certain groups suddenly become free market capitalists?

have people always been like this? was this 'anything but agree' position common back in the 70s and 80s? is this an american thing or christian society thing?

ookblah• 1 year ago

good luck getting the average person to even get past the 2nd slide with basic calculations lol. he's preaching to the choir.

ivandenysov• 1 year ago

What are the challenges that prevent humanity from further automating clothes production? We don’t weave fabrics by hand anymore, but we still sew pieces of it together by hand. Why is that?

MrGreenTea• 1 year ago

Because weaving is simpler and more repetitive than sewing. Sewing is both a pretty precise job and also lots of different movements, angles and very few straight lines. All of these make it less efficient to automate.

If you're interested in the history: it took quite long after during the industrialization to invent a working sewing machine. There are quite a few interesting Youtube videos for example on the history and workings of the sewing machine.

ungreased0675• 1 year ago

While the hypothetical shoes from Asia retail for $100 and US made shoes are $220ish, in real life the Asian made shoes cost $190 and the US made shoes cost $220. It’s insane how much a little bit of fabric and foam gets marked up as it works through the value chain.

DeathArrow4• 1 year ago

From this model, you can see a few things.

First, adding $26 tariff at the port doesn't just add $26 to the final price. Everything here works off of percentages. In this simple model, we say Nike has a landed cost of $25, sells it to Footlocker for $50, and they retail at $100

Not sure I agree that everything works on percentages. Shipping has a fixed cost, etc.

ZeroGravitas• 1 year ago

Reminded me of the folk-comedy duo Flight of the Concords' song "Issues (Think about it)”:

They're turning kids into slaves just to make cheaper sneakers.
But what's the real cost?
'Cause the sneakers don't seem that much cheaper.
Why are we still paying so much for sneakers
When you got them made by little slave kids
What are your overheads?

https://youtu.be/GimzSBVQUDo

ZiiS• 1 year ago

Interesting article and substantively correct about the direct impact of tariffs. But is using a bit of a straw-man as a hook. It is very easy to buy decent quality sneakers for $2 wholesale, and Nike do sell a lot of $150 sneakers. No one assumes that they are just taking that as profit; it is mostly spent on advertising (sports sponsorships etc.) supporting retail etc. Fundamentally, they can and will choose to change the percentage they spend on raw materials and complex manufacturing techniques if that is what the marketplace demands.

littlestymaar• 1 year ago

Trump's tarifs are indeed absolutely idiotic, but so are all those people claiming that free trade is entirely positive and ignore all the problems that arise from the West being unable to run industries anymore.

scotty79• 1 year ago

"Retailers mark up the shoes 100% to recoup various costs and generate a profit."

Whenever I enter any physical store it always boggles my mind how insanely inefficient the whole endeavor is for all involved. But that retail basically swallows half of the price is just unbelievable.

TrapLord_Rhodo• 1 year ago

The problem i have with this article is they use a "Hypothetical shoe" that retails for $100, but then directly quote a $220 shoe for the "American Made" side. Then use this as the entire justification for the price disperity. People absolutely pay $220 for "Chinese made" shoes too. It's all about branding...

Rockwell is price competitive with both kuka and fanuc. If you want to talk about 'Difference in manufacturing cost', why don't we start there?

pc862• 1 year ago

Derek writes a lot of great fashion threads but he is a dyed-in-the-wool partisan and it comes through any time he touches on things remotely political. This doesn't mean he's wrong and it isn't even necessarily a bad thing, but it's important to keep that in mind and just remember that when he says something political he likely arrived at that political opinion first and is picking examples/hypotheticals to support it, and not vice versa.

ctrlp2• 1 year ago

I regularly pay in excess of $100 for my shoes and would be a bit suspect of the longevity shoes that didn't cost significantly more than that. I wonder how these costs break out when thinking more about "being shod" than "buying shoes." I have ~$200 shoes that last me over 2500 miles (about a year of walking for me). I doubt a pair of Nikes could manage that but I haven't tried. On long trails, sneakers are usually worn out and trashed after 500 miles. Yes, different terrain but it's not just the soles that give out. Eventually, all soles wear out but the uppers are still good. I've had a cobbler repair some shoes and it's felt very worth the cost.

nicbou2• 1 year ago

I upgraded to Red Wings and Adidas Sambas. I'm astounded by the durability of both. Shoes used to be something I changed every season. It was indeed worth the cost.

ctrlp2• 1 year ago

Sambas for walking or running or sports? I've had good luck with Ecco shoes with Vibram soles for walking but my favorites were discontinued. Luckily, I bought a bunch of extras. As I've gotten older I've learned that if you find some shoe or clothing you really like, buy backups. So many great products are discontinued at some point.

How much do you think it costs to make a pair of Nike shoes in Asia?

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