Rethink tariffs on China goods, Walmart urges

Claiming potential harm to its customers, suppliers and the U.S. economy, Walmart Inc. lobbied the White House this month to reconsider its plan to add tariffs to $200 billion worth of Chinese imports.

Despite retailers' warnings, the Trump administration imposed a 10 percent tariff on an expanded list of goods from China that will take effect next week. At the end of the year, the tariff will increase to 25 percent.

Analysts say big retailers like Walmart have already imported their winter merchandise, so the new tariffs won't have much immediate effect on pricing. However, retailers may see lower margins next spring, especially if they try to avoid passing their increased costs on to customers.

U.S. Trade Representative Robert Lighthizer opened a public comment period July 17 on the proposed tariffs. Posted in the Federal Register, the request drew 6,194 comments from retailers large and small, as well as from the National Retail Federation trade group.

Walmart said in an emailed statement Thursday that the company filed comments on the tariff proposal "because we are concerned about the impact on U.S. suppliers, consumers and manufacturers, as well as families around the world. We encourage the two countries to find near-term solutions to ease trade tensions that will allow more opportunities for U.S. exports and benefit families in both countries."

Sarah Thorn, Walmart's senior director for international trade and supply chain, submitted a six-page letter on Sept. 6 on behalf of the Bentonville-based retailer. The letter focused on the potential harm from the tariffs to U.S. manufacturers, consumers and exporters, and the difficulties involved with restructuring supply chains to avoid the tariffs.

First, Thorn stated the tariffs could undermine the retailer's commitment to increase spending on products that support American jobs. She said Walmart already spends two-thirds of its purchasing budget for U.S. stores on products sourced, assembled or grown in the U.S., and announced in 2013 that it would spend an additional $250 billion over the next 10 years on American-made products.

Many of these products, though, contain component parts made in China. U.S. manufacturers use these parts in making fans, televisions, bicycles, cameras, electronics and other products. A 25 percent tariff on the parts will make U.S. manufacturing uncompetitive and drive up costs for consumers.

Thorn included a list of consumer goods subject to the tariffs that are priorities for Walmart in terms of volume, availability and challenges related to alternate sourcing. Such products range from pet costumes and canned Mandarin oranges to infant car seats, gas grills, bicycles, luggage and thermostats.

For many of the products, Thorn wrote, "shifting production to new facilities outside of China is not a viable option."

Items for infants and children such as cribs, car seats, food and hygiene products, and strollers pose special concerns for Walmart because they must be tested and certified to ensure they meet U.S. safety standards. Any change in supplier of finished products, component parts or materials would require new testing and certification. Safety concerns also apply to other regulated items like cosmetics, personal care products and small appliances.

The National Retail Federation expressed similar concerns about product sourcing problems and higher consumer prices in its letter to Lighthizer. "Global supply chains are extremely complex," the federation's letter states. "It can take years to find the right partners who can meet the proper criteria and produce products at the scale and cost that is needed. We do not support the U.S. government using tariffs as a means to induce U.S. companies to change their sourcing strategies."

Further, the federation wrote that the brunt of the tariffs will fall on U.S. manufacturers, service providers and consumers. "The negative impact will fall particularly hard on small- and medium-sized business and their workers who lack the scale, resources and options to weather or adapt to these tariffs," the letter states.

Ken Perkins, president of Retail Metrics LLC, said Walmart has a couple of things working in its favor as it braces for the full impact of the new tariffs. For one thing, he said, the tariffs come on the heels of the corporate tax cut that lowered rates from 35 percent to 21 percent.

"Most retailers benefited tremendously this year" from the tax cut, he said. "That gives them some wiggle room and in turn it's going to offset the impact of the tariffs."

Also, Perkins pointed out that about 55 percent of Walmart's sales are grocery related. "Most of that is not coming from China," he said, "so a large portion of their business is not going to be impacted by the tariffs."

On the other hand, he said, Walmart has been aggressively investing in the business over the past few years as it has made acquisitions, built up its e-commerce operations and logistics, and spruced up stores and its website. These expenditures have been affecting the company's earnings growth, he said.

"This is one more thing that's going to impact their margins in the near term," he said.

Perkins said retailers are looking at the situation carefully with an eye to limiting the effects of the increased costs on customers. "They're going to try to find a balance of how much they eat and how much it impacts their margins," he said.

Still, he said, shoppers should be prepared to see "a modest increase" in prices on some consumer products.

A Section on 09/21/2018