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Costco is pressuring suppliers in mainland China to cut prices in response to US tariffs, adding to the risk of scrutiny from Beijing as political tensions mount over an escalating trade war.
The US warehouse retailer, which relies heavily on imports from China, requested the price cuts, according to two suppliers. Walmart and other top retailers have made similar requests, they and other exporters said.
“The big ones, they have the muscle to do it,” one supplier said. “What do you do if you’re us? You’re screwed or you’re screwed.”
President Trump’s administration imposed an additional tariff of 10 per cent on Chinese goods in February 2024, which was subsequently raised to 20 per cent this month, pressuring US companies to try to minimise the impact on their bottom line.
The fallout is increasingly sensitive in mainland China where many suppliers have weathered years of tariffs, operate on thin margins and are bracing for the prospect of more levies.
Walmart last week was summoned by China’s Ministry of Commerce to discuss reports of the retailer’s requests. As well as relying heavily on imports from China the company has expanded in the mainland under its popular Sam’s Club membership model, with a presence in more than 100 cities.
Costco has since 2019 opened seven warehouses on the mainland. “They will be very careful,” the supplier said, in light of the Walmart meeting.
Costco declined to comment.
Walmart said it sourced products from 70 countries globally, helping to “spur job creation, promote supplier development and fuel local economies”.
He Yongqian, a spokesperson for China’s Ministry of Commerce, said in a press conference last week that the Walmart discussions were prompted by media reports as well as “feedback from companies”, and that Walmart “explained the situation”. One person familiar with the conversation said it was not a “dressing down”.
But the state media response reflected an environment increasingly framed by national lines. “China should not bear the blame for US tariffs,” said Yuyuantantian, affiliated with state broadcaster CCTV in a social media post. The post used the image of a finger pointing through a broken saucepan, a word that means “scapegoat” in Chinese.
China has also shown a growing willingness to act against US companies with local operations in response to US trade measures. It added PVH, the owner of Calvin Klein and Tommy Hilfiger, to a blacklist earlier this year.
An import-export specialist in China said there was “always pressure to reduce product cost”, but there were questions over whether demands were reasonable and concerns that they could lead to lower manufacturing standards.
As well as requesting price cuts, large US retailers have also sought to diversify away from China to de-risk their businesses, especially after Russia’s 2022 invasion of Ukraine prompted fears over a further deterioration in geopolitical ties and the breakdown of supply chains.
Discount retailer Target said the company had reduced production of its own brands in China from roughly 60 per cent in 2017 to 30 per cent today, and that it would reach 25 per cent by the end of next year, “four years ahead of schedule”.
“While half of what we sell is made in America, our scale, multi-category portfolio and investments across our supply chain will help us navigate tariff pressures as we have before,” the company said.
In its report for the quarter ended February 16, published last week, Costco said tariffs “affect the costs of some of our merchandise”, pointing to “government actions” relating to China, Canada, Mexico and the US.
“Higher tariffs are more likely to adversely impact rather than improve our results,” the company said.
Additional reporting by Wang Xueqiao in Shanghai
