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Trainers and the Rise of Nike

1:11:15 recording · EN · 5 speakers

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Brief overview

Nike's fight over a $25 million customs bill launched the outsourcing model that reshaped global manufacturing.

  1. A shoe designed as a legal weaponThe One Line carried no swoosh because its whole job was to lower the American selling price Nike's imports were measured against.
  2. Nike sold the smile curve, not shoesGary Jareffi's curve puts value in design and marketing at the ends; Nike kept those and left the making of the trainers to contract factories in Asia.
  3. Asia captured skills, not just cheap ordersTaiwan went from making trainers to making the world's most advanced silicon chips, and Chinese brands like Anta and Li Ning now sign athletes such as Steph Curry.
Executive Summary AI
  • In the late 1970s Phil Knight opened the morning mail to find a US Customs invoice for past due duties of $25 million, the exact same number as Nike's total sales for the year.2:03
  • The bill came from an arcane 1920s-30s rule called American selling price, which set duties not on what an imported shoe cost but on what a similar American-made shoe would sell for, doubling the charge in Ed Conway's worked example from $1 to $2.19:26
  • Nike's counter-move was the One Line, an unbranded 1980 knock-off of its own Oceana made cheaply in America and sold at almost no profit to lower the reference price; it cut the duty increase by two-thirds, Nike settled for $9 million rather than $25 million, and ASP was eliminated from the entire US customs code.24:24
  • Winning that battle in 1980 opened Pandora's box: Adidas, Converse, New Balance, Puma and Reebok all followed Nike's design-here, make-it-in-Asia model, and production chased cheaper labour from Japan to Korea and Taiwan, then China, then Vietnam after trade relations resumed in 1995.31:41
  • Patrick McGee argues Apple put the same model on steroids and was captured by China, while China, reading the smile curve as inverted at the national level, took the supposedly low-value middle and built capabilities in smartphones, solar panels and batteries on top of it.54:34
Key Quote
“I had no idea what they were talking about.”
— Phil Knight2:09
Key Quote
“Supply chains are the nervous system of globalization.”
— Patrick McGee46:25
Key Quote
“So I call them captured by China.”
— Patrick McGee56:28