Please provide an analysis for this discussion.

Many of you invested a lot of energy into learning a little about Trade Wars in June. Let's apply those policies to changes in direct labor costs. Again, limit your arguments to policy, not politicians or political parties. Corporations have to operate in the business environment that exists. They can lobby to change that environment to their benefit, but analysis of what is happening is still relevant, regardless of political opinion. I'm keeping my mind open as I read your discussions. Teach me!)

"Sneaker companies such as Nike and Adidas, outsource production to more than 1 million workers in factories in China and other countries around the world. In 2014, Nike reported $28.50 as the general cost to manufacture one pair of sneakers and ship them to the United States. Nike's cost breakdown includes approximately $27.50 per pair for Chinese factory labor and overhead costs, plus $1 in shipping. All told, Nike nets a profit of about $4.50 on each pair of shoes. Wholesalers pay about $50 per pair of sneakers, and retailers mark up the shoes 100% to recoup costs. In recent years, rising costs of labor in China have impacted profit margins."

In your answer:

1. Where would you include direct labor in the classification of cost drivers?
2. Look at the 2018 annual report for Nike, Inc. What was the gross margin for 2018, 2017 and 2016?
3. Explain why gross margin may be decreasing. (Read/skim the management and discussion letter in the opening of the annual report.)
4. Assume Nike suddenly moved its production to the US from China. Assume US workers' labor cost $25 per hour and Chinese workers' labor costs $3. Using all of the information provided:
   1. change the numbers for Cost of Sales to reflect this change in cost for 2018. What is the new gross margin?
   2. change the sales number to keep Gross margin constant (pg 22 reports sales for footwear separate from apparel and equipment). What is the new sales price for a shoe?
5. Now step back and apply what you know about supply and demand curves. Do you think sales will stay consistent if costs increase? Why or why not?
6. Some argue that tariffs will bring labor jobs back to the US from China. What impact would bringing these jobs back have on Nike? Shareholders? Customers? Workers?