Nike’s supply chains at risk after Trump tariffs

Nike stock fell to a seven-year low last week after Donald Trump raised extensive tariffs on Vietnam, where over 50 per cent of its shoes are manufactured.

So what? Nike built a sneaker empire on low-cost labour overseas – but it also took a gamble. Two decades ago moving factories to Southeast Asia looked like a shrewd way to hedge against US tensions with China. Now Trump’s threat of a 46 per cent tariff on Vietnam has exposed weaknesses in Nike’s supply chain when the brand was already struggling.

Made in America. Nike helped turn Vietnam into a manufacturing hub, opening five factories in 1995. Today it employs an estimated 450,000 workers across 130 factories in the country. But its heavy reliance on Vietnam was an issue partly created in Washington.

• Trump’s trade war with Beijing in his first term in office forced many companies to move production elsewhere, many choosing Vietnam.
• As a result, Vietnam’s trade surplus with the US reached $125 billion last year, third behind only China and Mexico.
• The White House has used these trade balance numbers to justify unprecedented tariffs (despite the fact Vietnam holds $42.3 billion in US government bonds).

The tariffs have since been paused for 90 days, but if they do go into effect, Nike has two options: absorb the cost and raise prices for consumers, or shift production – a process that could take two years. More than 40 per cent of Nike’s revenue comes from North America, making it even more susceptible to US tariffs than competitors like Adidas and Puma.

Fault lines. Nike’s troubles started long before Trump entered the picture:

• Failure to innovate hurt performance. Experts say the brand focused too heavily on retro sneakers and fashion trends, sidelining performance products like carbon-plated race shoes and leading to a stagnant core sports business.
• The appointment of CEO John Donahoe (who stepped down in September after earning a rep as the man who made Nike “uncool”) coincided with the departure of experienced staff and significant internal restructuring. A data-driven, efficiency-focused approach didn’t pay off.
• Nike’s marketing lost its cultural relevance, moving from bold, iconic campaigns to generic, mass-market efforts. In 2024 Tiger Woods left the brand. This year’s headline move? A collab with Kim Kardashian’s Skims, seen as a quick fix rather than a long-term strategy.

Challenger. While Nike stumbled, new brands sprinted. Notably On, the Swiss company that turned a garden-hose prototype into an industry disruptor. On made roughly $2.6 billion in sales in 2024, a fraction of Nike’s $51 billion but yielding a 32 per cent increase in net profit from the previous year. How did they do it? Nike’s old playbook:

• On’s signature tubed sole differentiated it from competitors. It’s now releasing a first-of-its-kind spray-on shoe. The company even named its Zurich headquarters "On Labs" to emphasise a culture of innovation.
• After noticing nurses, doctors, and other professionals using On shoes for comfort, the brand could have expanded into the general lifestyle market. Instead, it withdrew from mass retailers and focused on running-centric stores to promote a specialist image.
• On targeted high-performing influencers and ultra-marathoners, persuading running store owners to champion its products. Instead of On sponsoring Roger Federer, Roger Federer invested in the company.

Advantage: On. If tariffs do kick in and recession hits, On, as a high-end brand with an affluent customer base, should be less sensitive to price shocks than Nike.

Know your customer. Meanwhile Nike is boxed in – too US focused, vulnerable to tariffs, relying on brand partnerships and scattered strategies rather than innovation and high performance.

What’s more… The US imports 99 per cent of its sneakers. If Nike continues to falter, there’s a huge opportunity for someone else. The US running shoe market is growing, now worth $7.4 billion – up 20 per cent in just three years.