In the case of Nike versus New Balance, U.S Trade Representative Michael Forman will need to make a decision on the terms of the Trans-Pacific Partnership (TPP). Mr. Forman will need to decide if it in American’s best economic interest to eliminate trade tariffs on imported footwear from Vietnam or to uphold the tariffs in place. To further complicate this matter, both Nike and New Balance were in disagreement on the opposed elimination of these tariffs.
a. Theoretical – Tariffs and Quotas have been used as a form of protection for domestic manufacturing to protect against foreign imports. In this case, protectionism has been able to keep the remaining shoe manufacturing jobs inside the United States, but by doing so, the added cost were passed on to the consumers. To understand how tariffs work in this case, the domestic supply and demand curve can be applied (Figure 1). When a tariff is imposed, “the price consumers have to pay increases to P d = P w + t. The world price by assumption does not change, at this higher domestic price, consumers want to consume less of the goods and domestic producers will produce more. (Debaere, …show more content…
Companies such as Nike and New Balance will always be in competition for the lowest labor cost, and sense Chinas labor cost is growing; Vietnam is now the most profitable place for production. Vietnam has simply positioned them to provide a demanded service to improve their profitability and grow their economy by using specialization. With the lower production cost from Vietnam and reduced tariffs, the U.S firms can generate more income to grow their business. With a growing business, companies such as Nike and New Balance will be able to hire more value added employees to help offset the domestic job loss caused by removing tariffs on