How Lower Tariffs Under TPP Could Send More Nike Jobs To Vietnam -- And Harm The Company

Disclosure: I own shares of NKE Let me be clear from the beginning. I agree, in principle, with President Obama that the new Trans-Pacific Partnership (TPP) he is promoting will be beneficial for the American economy, and the economies participating in it. In theory, trade accords remove market barriers and foster economic growth and new job opportunities, as they help market participants allocate their resources efficiently and effectively. But in practice, trade accords have winners and losers. That’s why they are so politicized. So there is one thing hard to understand: how removing US tariffs of footwear and apparel made in Vietnam will induce producers of such products as Nike Inc (NYSE:NKE) to make them here rather than there. Actually, the argument can be made that now it will be more profitable for Nike to raise production in Vietnam, as the cost differential between US and Vietnam becomes even more favorable for Vietnam! Simply put, tariff elimination under TPP may provide Nike an opportunity to outsource more jobs to Vietnam, not less, unless I missing something here. Of course, there is the argument that the money saved in tariffs could be plowed back to R&D to strengthen Nike’s competitive advantage. But Nike is a highly profitable company, so it has plenty of funds to plow into R&D, if that’s a strategic choice. Nike’s Key Financial Metrics