Is Adidas Right to Be Worried About a US-China Currency War?

On Thursday, Adidas AG CEO Kasper Rorsted voiced his concerns about the potential threat of a U.S.-China currency war, arguing that a monetary standoff between the two economic superpowers could be even worse for the industry than the long-brewing trade war.

Investors have been on edge this week after China allowed the yuan to weaken past seven per U.S. dollar on Monday for the first time in more than a decade, a move widely seen as a retaliatory measure against President Donald Trump’s latest tariff escalation. In response, Trump called out the Chinese government for “currency manipulation,” a claim the People’s Bank Of China has denied. He also admonished the Federal Reserve for not cutting interest rates more substantially, doubling down on the criticism in a series of tweets on Thursday.

“As your President, one would think that I would be thrilled with our very strong dollar. I am not! The Fed’s high interest rate level, in comparison to other countries, is keeping the dollar high, making it more difficult for our great manufacturers… to compete on a level playing field,” he wrote.

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In recent weeks, the president has also said that he would consider taking action to weaken the dollar in order to help U.S. manufacturers be more competitive in the global market, a move that would have ripple effects around the world.

“There is no winner in a currency war,“ Rorsted said on a call with reporters after announcing the brand’s second-quarter earnings. “Eventually everybody will lose because it will lead to a slowdown in the global economy.” In an interview with CNN, the executive also said the issue was more concerning than what’s happened in the trade war so far because, “We can mitigate anything around tariffs. We cannot mitigate currency fluctuation.”

Other footwear brands and retailers, though, may find the former equally challenging: Adidas is minimally exposed to U.S.-China tariffs because it has moved much of its manufacturing to Vietnam and other countries in the past decade. Today, only 20% of its sourcing comes from China, and much of that is produced for the domestic market, which accounts for 25% of the brand’s sales, Rorsted said. This isn’t true of the footwear industry as a whole, though; about 70% of the U.S.’s shoe imports come from China, according to the Footwear Distributors & Retailers of America, leaving businesses particularly vulnerable to any trade disputes between the two countries.

Adidas has another reason to fear a weak yuan: China is currently the brand’s biggest driver of revenue growth, with sales up 14% year over year in the second quarter. (In its Shanghai store, Rorsted said, it sees between 20,000 and 30,000 visitors per day.) If the currency dips, customers may be less eager to buy the German company’s products.

Scott Hoyt, a senior director at Moody’s Analytics covering consumer issues, agreed with Rorsted’s assessment that a currency war would be devastating, but said it’s unlikely to happen given the damage it could inflict on the U.S. and Chinese economies.

“I’m not sure I would want to make the call as to whether a currency war or trade war is worse,” he said. “I think they’d both be very bad. But I think it’s pretty clear that [a currency war] would be a big negative for financial markets: stock prices would probably fall significantly, business confidence and therefore investing in hiring would fall. At that point, consumers are seeing their wealth drop, jobs are harder to get, their confidence is going to tank and all the preconditions for a recession are in place.”

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