**Beijing**: Costco is urging Chinese suppliers to lower prices in response to increased US tariffs, causing concern over the geopolitical tensions. Other retailers like Walmart are also navigating these challenges while facing scrutiny from the Chinese government amidst a shifting sourcing landscape.
Costco has begun to exert pressure on its suppliers in mainland China to implement price cuts in light of recently increased U.S. tariffs, a move that has raised concerns amidst escalating political tensions between the U.S. and China. According to reports, the warehouse retailer, which heavily relies on Chinese imports, has made this request to two of its suppliers, echoing similar actions taken by other major retailers, including Walmart.
The U.S. administration, under President Trump, initially imposed an additional 10 per cent tariff on Chinese goods in February 2024. This figure was raised to 20 per cent earlier this month, compelling U.S. companies to seek ways to mitigate the financial impact on their operations. One supplier remarked, “The big ones, they have the muscle to do it. What do you do if you’re us? You’re screwed or you’re screwed.”
In a development reflecting the sensitivities surrounding these negotiations, Walmart was recently summoned by China’s Ministry of Commerce to discuss these reported requests for price reductions. Walmart has been expanding its presence in China through its Sam’s Club model, which operates over 100 locations across the mainland. In contrast, Costco has opened seven warehouses since its entry into the market in 2019. A supplier noted that in the context of Walmart’s meeting with the Ministry, Costco will need to proceed with caution.
Costco has chosen not to comment on the situation, while Walmart issued a statement highlighting that it sources products from 70 countries worldwide, contributing to job creation and local economic growth.
He Yongqian, a spokesperson for the Ministry of Commerce, addressed the situation at a recent press conference. He stated that the discussions with Walmart stemmed from media coverage and feedback from other companies, and assured that Walmart “explained the situation” during the meeting. A source familiar with the talks mentioned that the session was not a reprimand.
The backdrop to these developments includes growing nationalistic sentiments within China, exemplified by a post on social media from Yuyuantantian, affiliated with the state broadcaster CCTV, which stated, “China should not bear the blame for US tariffs,” accompanied by a metaphorical image illustrating the concept of being a “scapegoat.”
In a climate where China appears increasingly willing to take retaliatory actions against U.S. firms operating locally, the situation remains precarious. Earlier this year, for instance, it added PVH Corp, the owner of brands such as Calvin Klein and Tommy Hilfiger, to a blacklist.
According to an import-export specialist based in China, there is an ongoing pressure for price reductions from large retailers, yet concerns have emerged regarding the rationality of such demands and the potential impact on manufacturing standards.
Aside from requesting price cuts, many U.S. retailers have also begun to diversify their sourcing strategies to reduce dependence on China, especially given the geopolitical uncertainties intensified by Russia’s invasion of Ukraine in 2022. Target has reported that it has decreased its production of private label products in China from approximately 60 per cent in 2017 to 30 per cent currently, with a goal to reach 25 per cent by the end of next year, which is ahead of schedule.
In its quarterly report for the period ending February 16, Costco addressed the implications of tariffs, stating that they “affect the costs of some of our merchandise” and underscoring that “government actions” in relation to China among other countries are likely to adversely impact its financial results.
Source: Noah Wire Services
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