Marketplace - Footwear will likely still be “Made in China”

Episode Date: April 7, 2025

Import levies on Chinese goods amount to 54% right now. But some things that China excels at producing will likely remain in China. In this episode, why shoemaking can’t up and leave anytime soon. Plus: Copper prices ballooned and tanked in the past few weeks, European carmakers weigh their options in the trade war and recession fears, not inflation fears, are driving bond yields.

On the program today, well, pretty much exactly what you'd think. From American public media, this is Marketplace. In Los Angeles, I'm Conn Rizdall. It is Monday today, the 7th of April. Good as always to have you along, everybody. Let's regroup here for a second at the start of a fresh week, shall we? A president who believes, wrongly, that trade deficits are losses, those are his words, not mine, he has decided in the space of something less than a week to entirely upend the global

economic order. Stock markets, as you know, have reacted badly. Consumers and businesses increasingly the same, and nobody knows what is going to happen next. The rules change on a whim and without notice. So for those of us whose job it is to figure out what is going on, while we are turning to some infrequently used indicators, Marketplace's Sabri Benishor gets us going with the two-year Treasury note. Almost everybody out here in this economy is touched in some way by interest rates. Harry Mimayski is a professor at Columbia Business School. It's what people pay to lease their cars and their home mortgages and their credit card bills. The Federal Reserve influences these interest rates based on

what it thinks the economy needs. And what the Fed does is going to depend a lot on what tariffs do to the economy. Right now, economists expect tariff policies going to hit in two big ways. One is it'll probably push inflation up at least for a while. And the other is it will push output and employment down. Bill English is professor of finance at Yale School of Management. So tariffs equal inflation, tariffs also equal economic slowdown. Here's the tricky part. The Federal Reserve can't fight both of those at the same time.

It keeps interest rates higher to fight inflation. It keeps rates lower to fight an economic slowdown. The bond market has to guess which one the Fed will do. Markets seem to think that the Fed will respond more to the weak economy than to the high inflation. Yields on two-year bonds, which look two years out in the future, dropped by a half a percent the past few days. Investors think the Fed will have to cut interest rates

more than expected because the economy is gonna be worse than expected. Ruben Hovhanesian is a fixed income portfolio manager at TWC. Investors believe that the growth is gonna slow, that we are potentially are going to enter into recession. At the beginning of the year, markets expected the Fed to cut rates maybe once this year. Now they think the Fed's gonna have to do

much more than that. Harry Mimayski. Something like two to three rate cuts by the end of the year. So interest rates could fall by three quarters of a percent or more this year. So far Fed Chair Jerome Powell has said the Fed is not in a hurry. Colin Martin is a fixed income strategist at Charles Schwab a marketplace underwriter. He says that may be because tariffs aren't something the Fed can really help with.

And if the Fed were to cut rates, I don't know how much that's going to encourage companies to invest more. I don't think it's the level of borrowing costs that's necessarily affecting business behaviors right now. It's the uncertainty. The Fed can't do much about that. In New York, I'm Sabri Beneshor for Marketplace. On Wall Street, as we start this fresh week, very ugly start, as you surely know, calmer by the close. We will have the details when we do the numbers. There's a vibey part of this whole thing that can't be ignored. And I say that not to be flip.

It's just that things are happening so fast and with such outsized effect that it can be a bit disorienting. And in an economy that runs, I mean, usually on stability in a general sense that people know what's going on, that can really matter. Elizabeth Crowfoot is a senior economist with Lightcast. Elizabeth, welcome to the program. Thank you so much. Glad to be here.

As the trained economist in this conversation, what do you make of everything that's going on right now? Oh, you know, I'm a labor economist. So I think about things from the perspective, obviously, of the labor market and just all the uncertainty that we're seeing is really manifesting itself in several ways throughout the labor market. Keep going. First of all, we see this frozen labor market, right?

There are hirings that have stalled out, quits and layoffs are relatively steady, job openings have been moving sideways since essentially the summer of 2024. So there's not a lot of job opportunity that people are seeing recently, and that's really where you start to see uncertainty come in at least from the consumer side right because at the end of the day it's do you have a job are you bringing income

into your household and what does that mean for your household budget and your financial situation so if you don't have that job and that solid income, that's going to manifest itself in the real economy in terms of your spending power and your your ability to be a consumer. Am I wrong if I take your use of the word uncertainty and flip it and talk about economic confidence? Because it seems to me that what is happening now like since last Wednesday is that? Subject to the whims of one man the global economy now has no confidence in Anything there's there's literally no stability In terms of that stability it is definitely the whims of one person, right?

It can change on any given day The whole uncertainty around tariffs, all of that hits consumers as well. It hits people in their jobs. And my neighbors, for example, are big travelers and asking them about what plans you have for the summer. And they're saying, I don't know, we're actually going to hunker down and start saving a little bit more because we don't know what's going to happen to our jobs. So that's really hitting everybody on so many levels. If you were a business person, which is not to say that economists aren't business people,

but if you were like running a manufacturing company and you had to think about starting a new plant here, what would your set of considerations look like present-day? That's a really good question. And actually in my current position at light cast. I do talk to a lot of companies especially those that are in Canada having the same exact conversation about What am I gonna do? I need to move operations quickly. But they need to be in an area of the country that's going to make sense for them financially, not only from a labor standpoint, but from other costs as well in terms of energy availability. There's so much that goes into that rents. So it's a huge equation. It's the whole

gamut of starting to run a business from a different country. And what are all of the considerations that they need to make? What is your, this is sort of a squishy question, but what's your overall level of concern right now about what you see again, as the economist in this conversation? I mean, the real economic data so far is still really solid. I mean, the jobs report from last week. That's a super important point actually, right?

Yeah. Yeah. I mean, unemployment is still very low, historically low, 4.2%, really solid job gain. If this was pre-pandemic times, we'd be all celebrating this huge uptick in jobs. But yeah, I mean, it's all the uncertainty around that, and we're just in such a vulnerable position. And the thing is that it changes so quickly. Elizabeth Crowfoot, she's a senior economist at Lightcast.

Elizabeth, thanks for your time. I really appreciate it. Thank you. Great to be here. Thanks. The thing about global trade is that it's global. So whatever it is that President Trump says he's doing to the American economy, it ain't going to stay in the American economy. Case in point, the second biggest economy in the world.

Last week's tariff, Orama, brought the total tax rate on Chinese imported goods to 54%. And then this morning, just to make sure you're completely up to speed, the president threatened another 50% China tariff, which, doing the math for you here, would bring the tally on Chinese imports to 104%. You'll recall, perhaps, that during Trump 1, the tariffs were on things like solar panels and computers and footwear, and that as a workaround, a lot of manufacturers tried to set up shop in places like Vietnam and Cambodia. That didn't always work out, though. And for a lot of reasons, China is still the place to produce a lot of stuff.

Marketplace Jennifer Pak explains from the southern Chinese city of Dongguan. Shoe manufacturing is labor-intensive. Workers punch every hole and lace every shoe by hand, says James Gao, whose company Shoebot owns this factory. Every lacing is manual. There's no robot. When local wages get too high, he says, shoe manufacturers like him have to relocate. That's been the pattern ever since shoe making started out in the West.

The footwear started from Europe and then America. By the 1960s, he says shoe factories had shifted to Japan and Brazil, then Korea and Taiwan. And for the past three decades, the industry has been based largely in mainland China. Until President Trump's first term, when he hiked tariffs on China, and China hit back with tariffs on US goods. So seven years ago, more companies started to look at relocating production to Southeast Asia. Among them, Colorado shoe brand Zero, spelled with an X. We actually looked at Vietnam.

Co-founder Lena Phoenix says, though, the brand didn't make the move to Vietnam because they produce specialized shoes meant to mimic the sensation of being barefoot. We make everything from casual sandals to technical hiking boots to professional quality basketball shoes. So because we have such a wide range of styles requiring different technical capabilities, we use a number of different factories. And those factories are in China, because that's where the skilled workforces are. Phoenix's company is doing business with James Gow's Shoebot.

Shoebot works with small and medium-sized brands. It also makes shoes in Vietnam, though its operations there are small. One of the company's clients, Mark Olson, co-owns a Portland shoe startup called Avali. He says Vietnam may be good for big brands, not niche ones like his that make volleyball shoes for women and girls. Vietnam is where China was maybe 15 years ago. But China, he says, has so-called industrial clusters. With everything you need for shoes, from raw materials to foam manufacturers, knitwear,

lacing, and embroidery groups. They're all within driving distance of Chinese shoe factories, he says. So it's just set up to do it right. And he says, the Chinese factories are innovative. They find new materials, upgrade machines, and cut down production times. Manufacturing in China makes it easier to roll out and test different colors for new volleyball shoe styles, says Avalli's other co-founder, Rick Anguilla. There's nothing more satisfying than being at one of these tournaments and having our product on

display and you hear those four words as they pass by, oh those are cute. He says his company thought about manufacturing in the U.S. but decided the challenges were too great. Lena Phoenix of Zero Shoes agrees. It would take hundreds of millions of dollars of factory investment, the training of a workforce that does not exist. It would take an enormous amount of time. Vietnam seemed like a more attractive option, despite its less skilled workforce, and her company had hoped to shift manufacturing there. Since Trump increased tariffs on Vietnamese

exports by 46% last week, she's been having second thoughts. One of the things that's critical for us to know is whether or not these are in fact the final tariffs. Given all of the changes that have come out of this administration, we are to some extent waiting for the dust to settle. In these uncertain times, some manufacturers remain optimistic. Again, Shoebot's CEO, James Gao. As an entrepreneur, he says, he's excited because the tough economic climate and uncertainty means large players don't hold all the advantages. Small manufacturers like him are more agile and can help clients pivot quickly, he says,

for whatever may come next. In Dongguan City, I'm Jennifer Pat for Marketplace. Coming up... It's a beautiful facility. It works clean, carbon free. And it's getting shut down. First though, let's do the numbers. Dow Industrial is off 349 points at the close today, nine tenths percent thirty seven thousand nine hundred and sixty five. The Nasdaq inched up fifteen points about a tenth percent

15,000 603 the S&P 500 dipped into bear market territory in midday trading before swinging back Tally at the close was a dip of eleven points nearly a quarter percent five thousand and sixty two as I said ugly start, better by the close. Let us go global now, shall we? Hong Kong's Hang Seng dipped 13 and two tenths percent, the biggest single day drop since 1997. Japan's Nikkei slumped 7.8 percent. Over in Europe, Britain's FTSE stepped down about four and four tenths percent. The CAC 40 in Paris slipped four and 8 tenths percent. The DAX

in Germany off about 4 and a tenth percent. Today the White House has directed the Committee on Foreign Investment in the United States, CFIUS, to take a fresh look at Nippon Steel's bid to acquire U.S. Steel. You might remember the Biden administration blocked that deal. U.S. Steel shares up 16 and 2 tenths percent. Today you're listening to Marketplace. This is Marketplace. I'm Kyle Rizdal. Ursula von der Leyen, the president of the European Commission, said today that Europe is, quote, always ready for a good deal as the EU,

the world's second biggest economy when taken as a single block, tries to navigate its changing relationship with the United States. Whether there's a deal in the offing or not, some imports from across the pond are already caught in the tariff crossfire, cars in particular. Audi says it's going to keep recently arrived cars at ports in the United States while it figures out what's what, and Jaguar Land Rover is going to pause shipments of cars from the UK for a month. out what's what. And Jaguar Land Rover is going to pause shipments of cars from the UK for a month.

Marketplace's Henri Epp explains what European cars can tell us about how the rest of the world is responding to Trump's tariffs. European car companies have a bit of time to plot their next move because they've got cars on dealer lots that came into the US before the tariffs. So Sean Tucker at Kelley Blue Book

says Audi could keep those cars sitting in port for a while. Because at this point they have more than a three month supply before their dealers reach a point where they're having to pay the post-tariff cost. But pretty quickly they'll have to make a choice. Selling internal combustion engine cars to the US had been a steady source of revenue in a global market that's leaning electric, says Carl Brower at iccars.com. But now, they can't really sell even their internal combustion cars that still have plenty of profit built in to the

US consumers because of the tariffs. So what are their options if these tariffs stay in place? Brower says they could shift more production to the US to avoid import taxes. Or says Mary Ann Madeira, an assistant professor of international relations at Lehigh University. The best option for these firms is to divert trade away from the U.S. and towards consumer markets elsewhere in the world. European leaders, she says, have already been looking to open up trade to South America and other parts of the globe. But they're also preparing to respond with retaliatory measures if they don't reach a

deal with the U.S. The problem is, Madeira says, balancing all the competing interests and politics across the 27 member states in the EU is really tricky. One example? The automobile industry is really located in Germany, but a lot of parts and suppliers are in Central and Eastern European countries like Czech Republic and Hungary. So hurting the exports of one country in the name of standing up for the block could hurt relations between EU members. I'm Henry App for Marketplace. marketplace.

We told you a couple of weeks ago, I think, about copper and how it was then at a fresh record high. Two weeks, as you know, is a very long time the way things are going right now, and copper is cratering, which, as Marketplace's Savannah Peters reports, is something of a macroeconomic tell. You need copper to make or build just about anything in this economy. Almost every sector relies on it. From construction, infrastructure and also defense.

Chief market strategist Philip Striebel at Blue Line Futures says those are the traditional markets for copper, but it's also in high demand for various kinds of emerging tech. EV vehicles, which use four times more copper than traditional gas vehicles, AI, which is energy-intensive computing, requires copper in order to perform its function. All of this is why demand for copper, both the actual metal and copper futures, usually portends healthy economic growth. But the recent run on the 29th element doesn't quite fit that pattern, says Trevor Yates, senior analyst at GlobalX ETFs. Copper prices were almost synthetically high because of this pre-buying.

Pre-buying ahead of last week's tariff announcements, which ultimately did not target copper. Craig Perong, a professor of finance at the University of Houston, says it's on a short list of products, including lumber and semiconductors, exempted by the White House. One possible reason would be that they surmised that Americans would bear most of the cost of the tariff on copper. And decided against a specific tariff for now. So why have copper prices been tanking? This is a verdict about the overall prospects for the economy, not something specific to

the copper market. Perong says slowing demand for copper could foreshadow a broader slowdown around the world, especially in China, the world's top buyer of the metal. I'm Savannah Peters for Marketplace. Way out in the middle of the Mojave Desert, 200-ish miles northeast of downtown LA, right up against the Nevada border, is a solar plant known as Ivanpaw. It's not a bunch of solar panels generating electricity directly like on a rooftop, but still it's been supplying enough juice to power 140,000 homes for more than a decade.

And in yet another example of you just can't fight the market, it's closing soon. Marketplace at Kelly Wells explains. Ivanpaw creates what's called concentrated solar power. Basically, you set up a bunch of mirrors in concentric circles. And those mirrors reflect the heat of the sun to a receiver that's mounted at the top of a big tower. Clean energy consultant Ed Smilov says the receiver has molten liquids that then heat up really hot in the focus of the beam, which is hot enough to cartoon style fry the occasional bird that flies through it. And the fluid in the receiver, molten salts, is used to drive the energy through a conventional

steam turbine. Just like in a fossil fuel plant, except using sunlight instead of burning coal or natural gas. Ivanpah opened 11 years ago, and it's run by a company called NRG Energy. It cost $2.2 billion to build, $1.6 billion of which came in the form of loans from the Department of Energy. The cost of the project compared to other renewable technologies looked reasonable. That, of course, has changed dramatically over the last 15 years or so. Because over that period, the cost of photovoltaic or PV solar power, you know, solar panels, has fallen about 70% to the point where it's

significantly cheaper than the energy that Ivanpaw generates. The main buyer of the plant's power, California utility PG&E, released a statement saying it's pulling out to save its customers money. Ivanpaw is set to close early next year. Whether that counts as a failure depends on how you view the mission of the Department of Energy's loan programs office says Jigar Shah. He's the former director there. It was clearly successful in that we gave them money and they commercialized the technology here in the United States.

He also says taxpayers will get most of their money back. The Department of Energy declined to say exactly how much. On the other hand, Shaw says, It didn't catalyze a trillion dollars worth of investment. So from that perspective, it wasn't successful, right? Whereas the solar PV investments that we made did catalyze a trillion dollars of investment. And that trillion dollars of investment is what helped drive the price of PV solar down 70%.

Long term, the reason we're doing all of this is to get the technologies that succeed to get successful at scale. Concentrated solar power won't die when Ivanpaws shuts down. There are still people and companies who think the plant has value. Fred Morse is one of them. He's the guy who wrote up the report 55 years ago on whether it made sense to put solar on the roof of the White House. Today he runs a startup called SoulStore Energy that develops concentrated solar.

I was there two months ago. It's a beautiful facility. It works clean, carbon free. You really want to shut that down? He says, sure, PV solar panels are cheaper in the daytime, but they don't do squat at night. Whereas a concentrated solar plant can pump those superheated molten salts it generates into an insulated tank, so the plant can generate electricity at night.

But Moore says the future investments, like the one Ivanpah needed to get off the ground, are more uncertain as the new trade war and the shrinking of the federal government make investment less likely. I'm Kayley Wells for Marketplace. This final note on the way out today, a not great sign of the economic times, saw this on Bloomberg. It's data from Empower, which is a retirement services provider. It shows that hardship withdrawals from 401ks are running about 15 to 20% above the historical norm. Those early withdrawals, of course, are taxed, and if you're under 59.5 come with a 10%

penalty. It is a not great sign indeed. Our daily production team includes Andy Corbin, Nicholas Guion, Maria Hollenhorst, Iru Ekbinobi, Sarah Leeson, Sean McHenry, and Sophia Terenzio. I'm Kai Rizdal. We will see you tomorrow, everybody. This is APN. If there's one thing we know about social media, it's that misinformation is everywhere,

especially when it comes to personal finance. Financially Inclined from Marketplace is a podcast you can trust to help you get serious about your money so you can build a life you've always dreamed of. I'm the host, Janelia Espinal, and each week I ask experts important money questions, like how to negotiate job offers, how to choose a college that you can afford, and how to talk about money with friends and family. Listen to Financially Inclined wherever you get your podcasts.