Lessons From The 1970s

If the math of manufacturing didn't work then, why would it work now?

I owned Nike stock for a while. My husband owns some partly for irony’s sake; his grandfather was friends with Bill Bowerman and missed the chance to join the Nike ride at a very early stage. Every family seems to have an “if only” story; that’s theirs.

I had Shoe Dog by Nike founder Phil Knight on my list for a long time. Books tend to find me when the moment is right for me to read them, to teach me something specific. This one taught me less about Knight and more about manufacturing, as it was in the 1970s, and why the players may change, but the game doesn’t. Manufacturing is about getting a viable product for the lowest price.

Nike started as Blue Ribbon, a hastily-named company that Knight created so he could import Japanese shoes to the U.S. To some extent, we’ve been sold the myth of Nike as a fully formed idea springing from Knight’s head Athena-style, but Knight lays out the journey in each faltering detail and his ability to lay it all on the line every time.

Whenever I read a founder story, I’m always amazed by the amount of risk they are able to shoulder, the certainty that causes them to make massive swing-for-the-fences decisions. Some of this certainly is history being told by the victor but I’ve studied founders for years and this is the trait they share. Many investors love a founder-led company. I’m a boring investor, like Warren Buffett, I want to invest in companies a ham sandwich could run. I enjoy founder stories, I just know that the zeal that got them to the top can also send them in some odd directions because their certainty never wavers even in their missteps.

But back to the 1970s, imagine trying to set up an import business then. Knight had to go to Japan to plead his case, then wait months for samples and shipments. When he knew this agreement was about to go south and he decided to build Nike, there was not a question of starting with U.S.-based factories. Instead, he went to back to Japan, touring factories to find a match. Nike later bought and built factories in the U.S. but for the most part, it was understood that the U.S. could never fulfill the demand or pricing to build the brand.

As the company grows, it looks at factories around the world, finally heading to China. Back then, you needed someone to help you gain entry to China. The factories were nothing like they are now, and making shoes to the quality standards of Nike was a challenge at first. Today’s entrepreneurs can start up a relationship with a factory in China in a few clicks (at least for now). In many ways, India’s manufacturing is where China was then, emerging into a powerhouse. You’ve probably heard that Apple is doing more and more of its manufacturing there. In my opinion, India has more sheer talent than any country in the world.

The biggest lesson from Shoe Dog for our current moment is Phil Knight’s battle over the American Selling Price. I hadn’t heard of this, but at one point, Nike gets a bill for $25 million from U.S. customs because of this rule from the 1930s, which applied to footwear with synthetic uppers. The government didn’t discover this on its own, Knight says the other shoe companies pushed this to try and kneecap Nike. Nike eventually prevails through extensive lobbying and networking both inside government and in the court of public opinion, touting the company as an example of American innovation. The ASP is now a thing of the past.

The U.S. government has always played favorites, but that’s even more visible right now. Tariffs aren’t about putting more money in our pockets or more jobs on American soil. They are about influence, who has it, who doesn’t, and who can be forced into obeisance through punishment. And as usual, the consumer is paying. Even as people feel strapped, they buy more, partly out of fear that prices will skyrocket. This is not the way to support an economy in the long term.

Trump’s desire for tariffs dates from the 1980s, the time when the country as a whole was feeling the most anxiety about losing ground to manufacturing in Japan and other places. It is rooted in the idea of American exceptionalism, a knee-jerk patriotism. I love my country, but as an investor, I’m a realist. Markets evolve, and I believe we are in the midst of an evolution now. I’m still figuring out what that means, but I don’t believe the rhetoric that tariffs are the answer to creating a strong United States.