Why It’s So Hard to Leave China

A U.S. shoe manufacturer explains why she stayed even when her tariffs hit 190 percent.

Good Morning!

Here are today’s highlights:

• Lou Mosca tells owners it’s time to play it safe.

• The Big Beautiful Bill will increase health care costs for employers.

• Would you let ChatGPT decide who should get promoted?

• A successful entrepreneur says the lifeblood of small businesses is being squeezed by private equity.

THE TRADE WAR

A U.S. shoemaker demonstrates why moving out of China can be harder than it looks: “When an $80,000 tariff bill landed on her desk in May, Haley Pavone did what many small business owners might do: she froze hiring and added an online checkout fee to help cover the cost. Pavone, founder of California-based Pashion Footwear, which imports shoes from China, hasn’t moved production out of the country. Not because she hasn’t tried, but because, like many, it wasn’t a viable option. Since President Donald Trump raised tariffs on Chinese goods after returning to office, Pavone has scouted factories in Brazil, India, and Vietnam.”

• “But she quickly ran into problems: they all required higher minimum orders, and staff lacked training, particularly to make her unique shoes that convert from flats to heels. Even if she could find companies with skilled workers, they’d still need to import key components from China.”

• “A test run of a strappy heel from a factory in Vietnam proved to be ‘inelegant.’ So even as tariffs on some of her products peaked at a whopping 190 percent in April, she decided to stick with existing suppliers for now. With U.S. tariffs on Vietnam now close to the levels on China, there’s even less impetus to shift production away from the world’s second-largest economy.”

• “Recent trade data underscores the dynamic: China’s exports to the U.S. have plummeted while exports to Southeast Asia surged. Yet shipments from Southeast Asia to the U.S. have also skyrocketed — often by record amounts — indicating that goods and parts from China are still very much in demand in the U.S.”

• “Pashion’s shoes retail for around $200 a pair, with styles spanning a range of price points. The levies are eating into margins, but she says the business remains profitable for now. ... For Pavone, shifting orders to Vietnam would require upfront costs of at least $50,000, she estimates. And it’s still not clear what tariff levels she’ll face in much of the world.” READ MORE