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Kevin O’Leary firmly believes Nike fully manufactured the controversy surrounding the Betsy Ross Flag shoe and Colin Kaepernick ... and he says it's brilliant.

We got the "Shark Tank" investor leaving the "Squawk Box" show Wednesday morning in NYC and had to ask him about the heat Nike's catching for recalling its special Betsy Ross Flag Air Max 1 USA sneakers.

Kevin says that while Nike made a mistake getting the Betsy Ross flag involved to begin with ... the shoe giant knew exactly what it was doing when it yanked the shoes -- creating a firestorm of free marketing.

As you know, Kap felt the 13-star flag design prominently featured on the heel was offensive because it's been co-opted by several white nationalist groups. Nike felt Colin made a valid point and pulled the plug on the shoes.