Walmart clashes with China after asking suppliers to absorb tariffs
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The world's largest retailer is clashing with China over the company's efforts to reduce the impact of President Trump's increased tariffs.
Why it matters: Walmart — whose brand is inextricably linked to low prices — is trying to leverage its monumental size to mitigate its own costs from the billowing international trade war.
Driving the news: Officials from China's Ministry of Commerce met with Walmart executives on Tuesday to cry foul over the retailer pressuring local suppliers to absorb tariff hikes, according to a Chinese state media report.
- The Ministry of Commerce called for Chinese and American companies to work together in response to the tariffs.
Threat level: "If Walmart insists" ... "then what awaits Walmart is not just talk," state broadcaster China Central Television said on social media Wednesday, according to the WSJ.
Walmart did not respond to requests for comment.
- WSJ, citing people familiar with Tuesday's meeting, reported that the company offered to work with Chinese suppliers to "find ways to avoid damaging the interests of the parties involved."
Zoom out: Walmart's retail business in China is growing but was still less than 3% of the company's total sales in the 2024 fiscal year, according to an SEC filing.
- In that respect, the company has more to lose in the U.S. and other core markets if increased costs lead to price hikes.
Yes, but: Its exposure to Chinese supply lines is more substantial. Reuters has estimated that 60% of Walmart's shipments came from the country in 2023.
- Walmart has also made significant investments in its Chinese supply chain, having committed in 2019 to build or upgrade more than 10 logistics distribution centers in the country over the next 10 to 20 years.
Follow the money: "The retailer has historically had strong bargaining power over its Chinese suppliers and requests for lower prices have mostly been met," Bloomberg reported last week, citing people familiar with the matter. "But the scope of the recent requests are unusual and leaves manufacturers weighing whether to absorb the costs to maintain a longer-term business relationship."
💠Nathan's thought bubble: Walmart is playing with fire but retains a degree of leverage because it's such an enormous buyer and because it can source more products from other countries if Chinese suppliers don't cooperate.
