The imposition of tariffs on Chinese retailers is not being a smooth process for anyone involved. While President Trump’s goal seemed to be to punish retailers that took advantage of loopholes to avoid import taxes altogether and support American businesses, the reality is that most goods that are sold in America and even worldwide are produced abroad, and the biggest producer is China. This means that American companies like, Target, Walmart and even Costco are being impacted.
While we all think of Wish, Shein and Temu as the main companies selling Chinese goods, we just have to look at a tag in any store to see that Made in America is not the most common label. All the big retailers, especially those who sell home goods and novelty items at low costs (even if those costs are higher than those we can find online) bring in most of their products from the Asian giant and this means that their imports will also be affected by the new tariffs that were implemented on April 2.
But these companies are not about to foot the bill, especially considering the huge market share that they have lost in the past few years to Chinese retailers, and many like the aforementioned Target, Costco and Walmart are pressuring Chinese suppliers to absorb some of the costs.
The impact of the tariffs on American retailers like Target
The problem seems to be that Chinese retailers are also unwilling to absorb the cost, as they are operating on slim margins, which is what make these low quality products affordable to sell overseas. But the pressure is mounting. A Chinese manufacturer of hair accessories reported that Target (TGT) asked them to cover half of the tariff expenses. When they tried to reach a compromise, their shipments were postponed, and in the end, they lost the contract.
Contrary to popular belief this is not the first tariff imposed on Chinese imports. Big retailers that cannot skirt the rules by placing orders of less than $800 (the “de minimis” exemption that Chinese retailers like Temu take advantage of to sell their merchandise so cheap) have already been paying a 20% tariff on all Chinese imports. This new tariff would add another 10% to the cost, increasing the cost of many of the goods to an unsustainable price point.
Target has already begun over the years to diversify their sourcing of goods to avoid some of the higher tariffs imposed on Chinese imports, when prior they purchased around 30% of their stock form the Asian giant, they now only do 30%, but the impact is still massive.
Although Target has been working to lessen its dependence on Chinese suppliers, CEO Brian Cornell acknowledged that certain price increases are unavoidable, especially for fresh fruits like bananas, avocados, and strawberries. He noted that the company has been carefully strategizing to manage the effects of tariffs and prevent significant cost hikes for shoppers.
But that might not be enough to make the current situation sustainable. The prior 20% tariff on all Chinese imports impacted more than $430 billion worth of goods, which will now suffer the higher tax.
And it is not just Target that is rethinking their strategy and at least they do not have any warehouses in China, but Walmart and Costco do. Costco has a limited presence in China, with just seven warehouses, a stark contrast to Walmart’s extensive network of over 330 locations. While both Target and Costco operate in the Chinese market in a limited way and their leaving would impact the local economy in a fairly small way, Walmart has drawn criticism from Chinese officials, who have labeled its business approach as unfair and irresponsible.