President Trump announced his tariff plan yesterday. Generally speaking, liberals are crying, “The sky is falling.” The stock market is down today, but will probably be back up in a week or so after the impact of the tariffs is calculated. One indication of how things might go is what is happening with Walmart.
A friend of mine summed it up:
“U.S. retailing giant Walmart,” Reuters reported, “is continuing to push Chinese suppliers to cut prices to offset President Donald Trump’s tariffs.” In other words, to stay competitive, foreign governments must cut their prices, to stay competitive. They must cut prices to precisely offset the tariffs. That is why foreign suppliers actually pay for tariffs, and not Americans.
To put it differently, it is true the tariff is charged at the port of entry. But if Chinese factories want to keep selling here, they must lower their prices to absorb the hit, because consumers won’t pay. Foreign producers indirectly pay the tariff through lowered prices, or they lose market share.
It’s that simple.
Here’s how it works in real life: If a Chinese plasma TV costs $1,000 and there’s a 10% tariff, the U.S. government collects $100. Walmart tells the Chinese supplier, “We’re not eating that cost. Cut your price to $900 or we’ll stop buying.” So the Chinese factory promptly cuts its price to stay in business.
The result is that the U.S. Treasury gets paid, Chinese exporters take the loss, and American consumers barely notice.
On Wednesday, Yahoo Finance reported:
Walmart is reportedly standing firm in its demands that Chinese suppliers absorb the costs of U.S. tariffs.
Bloomberg, citing sources with knowledge of the situation, said Walmart (WMT) is asking suppliers to reduce prices by up to 10% for every new round of tariffs, effectively shifting the financial burden onto manufacturers. Last month, Chinese officials met with Walmart executives to discuss the request, calling it irresponsible and unfair. Despite this, Walmart appears unfazed and has doubled down on its demands.
…Walmart isn’t alone in pushing suppliers to absorb some of the tariff costs. Other major retailers, including Target and Costco, are following suit. Target (TGT), for instance, asked a supplier of hairpins and claw clips to take on “half the costs of the tariffs.” The supplier said the failed negotiation led to delayed orders, eventually losing the business. Target has not responded to Quartz’s multiple requests for comment.
Tariffs are a very efficient way to deal with uneven trade practices and with import/export imbalances.