Nike cuts China output by 2026 in a bold move to shield itself from rising U.S. tariffs. The sportswear giant aims to bring its U.S.-bound production from China down to single digits—sparking an 18% surge in its share price as investors cheer the pivot.
Why Nike Is Shifting Away from China
Faced with $1 billion in new U.S. tariffs, Nike plans to diversify production across Vietnam, Indonesia, Mexico, and Central America. This “China+1” strategy helps reduce exposure to geopolitical risk and rising costs.
Nike’s management said the shift would be completed by fiscal 2026, reducing China’s share of U.S.-bound output from around 16% to single digits
Financial Impact and Investor Reaction
- Nike expects to absorb about $1 billion in tariff-related costs before it can offset them with price adjustments
- Despite near-term margin pressure, shares jumped 18%—the biggest one-day gain in four years—as markets welcomed the plan
Nike reported Q4 revenue of $11.1 billion, beating expectations even though sales were down 12% year-on-year
Strategic Benefits of the China+1 Model
- Lower tariff exposure: Cutting direct production in China helps soften future trade shocks.
- Geographic diversification: Factories in Vietnam, Indonesia, and Mexico reduce single-country dependency.
- Faster local supply chains: Facilities in Mexico and Central America can supply the U.S. quicker.
This move positions Nike to stabilize margins despite temporary gross margin dips of 75–425 basis points during transition ainvest.com
Challenges Ahead
- Transitioning manufacturing is complex, requiring capital investment and operational changes.
- Nike must manage price hikes carefully to avoid harming demand
- Competition in global markets remains intense, especially from rivals already diversified beyond China.
Conclusion
Nike cuts China output by 2026, betting on a long-term supply chain overhaul to protect profits and reduce tariff risk. While short-term costs remain high, Wall Street’s response shows faith in the brand’s turnaround strategy—and signals fresh optimism for its global growth.
