Pulling Strings in the Trade War: Walmart and the Chinese Government Dance
Intensifying Pressure from China May Lead to Increased Costs for Walmart Customers in the U.S.
In the throes of a power struggle between the US and China, Walmart finds itself wedged between the American consumer's thirst for low prices and the Chinese government's firm stance.
Donald Trump's tariffs on Chinese imports, amounting to a 20% tax on goods from the Middle Kingdom, have put retail giants like Walmart in a tight spot. With a significant portion of their merchandise hailing from China, keeping prices low for the consumer has become a Herculean task. In an attempt to keep costs manageable, Walmart has tried to pressure its Chinese suppliers to lower prices. But the Chinese government isn't backing down.
The country's unyielding response highlights the predicament American businesses are in amidst the intensifying trade war between the US and China. With shoppers yearning for affordable prices, it might become challenging to sustain if the Chinese government continues to resist. And if a mammoth corporation like Walmart stumbles, smaller ones are likely to suffer too.
In the first week of March, Chinese officials called upon local Walmart executives for a conversation, following reports that the corporation had asked certain suppliers – kitchenware and clothing among them – to slash prices by up to 10% for each round of US tariffs. Chinese spokesperson He Yongqian confirmed the meeting, albeit without revealing further details. A Walmart representative stated that their purpose remains to assist customers in saving money and living better, assuring continued collaboration with suppliers.
Walmart now faces a tough decision: risk the ire of US consumers by raising prices, or irk the Chinese government by pressuring suppliers. This Chinese backlash contradicts US Treasury Secretary Steven Mnuchin's prediction this month that Chinese manufacturers will "eat the tariffs" and prices for US consumers "won't go up."
Thomas Hoenig, a fellow at the Mercatus Center at George Mason University and former president of the Federal Reserve Bank of Kansas City, believes the Chinese government's stance signals that US consumers will in fact pay for the tariffs.
Elevated tariffs, already challenging for American consumers and the retail sector, could intensify the pressure during these uncertain times.
In these tumultuous times, US shoppers are paring back on expenses – air travel, major home renovation projects, clothing, and even snack food. Spending at US retailers dipped below expectations in February, a troubling sign of strain on consumers. Retail sales grew only 0.2% compared to the previous month, according to the Commerce Department.
Weak consumer spending numbers fuel concerns about a potential slowdown in the US economy – and even a looming recession.
Walmart, long known for driving down prices through its immense scale and negotiation prowess, finds itself vulnerable against any resistance from the Chinese government. With approximately 20% of its goods sourced from China, the company's strategy of compelling suppliers to make concessions is at risk if the Chinese government continues to resist.
Joseph Jurken, founder of ABC Group, a consultancy that manages supply chains in Asia, suggests that China might be asserting, "Enough is enough." Trump's tariffs aim at China, and the country might have drawn a line in the sand.
It's not just Walmart's US business at stake. The corporation also has a substantial retail presence in China, including its Sam's Club warehouse chain of stores. Last year, Walmart's sales in China skyrocketed by 16%, reaching $17 billion. If the Chinese government maintains its pressure, Walmart's Chinese business could be severely damaged.
However, Walmart is arguably better positioned to handle tariffs than most companies. Approximately two-thirds of what Walmart sells is made domestically, and the corporation has a diverse pool of suppliers in over 70 countries. This means Walmart is not entirely reliant on China.
Tariffs impacting Canada, Mexico, and European countries will affect Walmart less than those on China. Walmart imports fewer products from these countries, and governments in these regions are less likely to exert pressure on the corporation directly compared to China.
"The Chinese government has more sway over suppliers," explained Michael Baker, an analyst at financial firm DA Davidson. "Businesses are less controlled by government" in Canada, Mexico, and the European Union.
The Ripple Effect: US Companies In the Crosshairs
The Chinese government's rebuttal to Walmart is the latest form of retaliation against the US and American companies. China has announced a new round of retaliatory tariffs on US agriculture imports, effective immediately, and earlier in March, the country announced an extensive package of economic measures targeting the US.
One of these measures involved initiating an investigation into Google for alleged anti-monopoly law violations. While Google's search engine is unavailable in China, the company has minimal operations in the country.
China's Ministry of Finance also added PVH, the parent company of Calvin Klein and Tommy Hilfiger clothing brands, and biotech firm Illumina to its "unreliable entities list" – essentially a blacklist of companies. PVH criticized the decision and vowed to work with Chinese authorities to resolve the situation.
Being added to the "unreliable entities" list could bar PVH from doing business in China or result in fines or other penalties, experts say.
This article was initially published by CNN and has been rewritten with a fresh and original tone, while including relevant insights from the enrichment data sparingly.
- Walmart's initiative to pressure Chinese suppliers to lower prices, in response to Donald Trump's tariffs on Chinese imports, has drawn a firm rebuke from the Chinese government.
- Liu, a Chinese spokesperson, confirmed a meeting with Walmart executives, following reports of the corporation's requests for price cuts, but provided no further details.
- The Chinese government's unwavering stance in this matter indicates potential increased costs for US consumers, further straining American businesses like Walmart amidst the escalating trade war.
