Nike Faces Severe Challenges From New Tariffs

The world’s largest footwear and apparel companies are facing a significant shock to their supply chains following President Donald Trump’s recent announcement of new tariffs on imports from Vietnam and other key manufacturing hubs. On April 2, 2025, the U.S. government imposed a staggering 46% reciprocal tariff rate on Vietnamese goods, part of Trump’s escalating trade war with various countries. Other tariffs included 49% on Cambodia, 34% on China, and 32% on Indonesia, putting immense pressure on companies like Nike and Adidas, which rely heavily on these regions for production.

According to regulatory filings, approximately 39% of Adidas shoes are manufactured in Vietnam, and Nike's dependence is even greater. The company sources 50% of its footwear and 28% of its apparel from Vietnam, making it the largest market for Nike’s production. With such a substantial portion of its goods at risk, the impact of these tariffs could be catastrophic for the brand.

In the wake of the tariff announcement, shares of Nike plunged 7% in after-hours trading on April 2, reflecting investor fears about the potential for increased costs and reduced consumer demand. Other companies in the sportswear industry were also affected, with shares of Columbia Sportswear down 3%, Under Armour falling 6%, and On Holdings, which manufactures 90% of its footwear in Vietnam, dropping 12%.

"This is catastrophic for American families," said Matt Priest, CEO of the trade group Footwear Distributors and Retailers of America, in a written statement. He criticized the broad nature of the tariffs, suggesting they would drive up costs, reduce product quality, and weaken consumer confidence.

Trump defended the tariffs, stating that he hoped they would encourage more domestic manufacturing. "If you want your tariff rate to be zero," he said, "then you build your product right here in America." However, the reality is that virtually all of Nike’s manufacturing is done abroad, and the company has been gradually shifting its production focus to Vietnam over the past two decades. In 2001, Vietnam accounted for just 13% of Nike’s footwear production, but by 2024, that figure had surged to 50%.

Oregon’s senior senator, Ron Wyden, expressed concern about the tariffs' impact on local jobs and the state’s economy. "These incoherent and destructive Trump tariffs leave no shortage of economic casualties in Oregon, including the painful fallout for the jobs and revenue generated by our state’s world-renowned sportswear industry," he stated. Wyden vowed to continue fighting against what he termed an "asinine excuse for a strategy" concocted by Trump and congressional Republicans.

Analysts are divided on the long-term implications of the tariffs. Shawn Narancich, an analyst at the Portland investment firm Ferguson Wellman, expressed skepticism that the tariffs would spur domestic manufacturing. "Companies like Nike are going to see this as temporary," he said. "We don’t have the labor capacity to scale manufacturing, and companies aren’t going to make that investment because nobody thinks this is going to stick. It’s headline grabbing."

Despite these challenges, Nike has areas of growth to lean on, particularly strong demand for its new Pegasus Premium in the running category and a recovery in markets like Japan and Latin America. However, overall revenue in the Asia-Pacific Latin America region has decreased, indicating that the macroeconomic environment remains a significant hurdle.

From a financial perspective, Nike's stock is currently trading at $64.815, which is significantly undervalued compared to its GF Value of $103.28. This presents a potentially attractive entry point for long-term investors. The company's Altman Z-Score stands at 4.64, indicating strong financial health, while its Piotroski F-Score of 7 suggests a healthy situation overall. Despite the downturn in share price, Nike maintains a PE Ratio of 21.53, close to its 10-year low, reinforcing its valuation appeal. The stock also boasts a dividend yield that is nearing a 10-year high, which could attract income-focused investors.

While short-term volatility is expected, Nike's long-term prospects appear promising, bolstered by its market position and commitment to innovation. Nevertheless, the newly imposed tariffs will likely lead to higher prices for consumers, as companies may absorb some of the costs while passing others onto shoppers. Alex Harding, another analyst at Ferguson Wellman, stated, "It’s certainly going to be an impact to Nike’s earnings in a negative way. And it’s going to be an impact to a consumer – higher prices."

In summary, the recent tariffs imposed by the U.S. government are set to have far-reaching implications for Nike and the broader sportswear industry. As the company navigates these challenges, its ability to adapt and innovate will be crucial in maintaining its market position and ensuring long-term growth.