China Lectures Wal*Mart

Company attempts forcing Chinese suppliers to absorb tariff costs

Already rising inflation is being anticipated by US consumers to rise even more leading to increasingly negative consumer confidence for the year. Bird flu has decimated roosting chickens that produce eggs whose price has risen to $6/dozen here in Oregon and similarly nationwide. Chickens bred for meat aren’t similarly affected, but egg-based ingredients go into many other products which has caused their prices to rise. The Atlanta branch of the Federal Reserve has released a GDP “growth” forecast for the 1Q of roughly negative 2.5% based on rapidly falling consumer confidence and inflation along with anticipated disruption of the industrial supply chain due to Trump’s tariff policies. When you look for news reports on this issue, you’ll see all sorts of gyrations. For example, DailyKos on 3 March cites it being -2.8% for the 1Q, with many other financial reporters predicting recession along with what is an increase in regressive taxation, which is what tariffs do. One result for the world’s #1 retailer is to try and strong-arm its Chinese suppliers into reducing their product prices so Walmart can continue to enjoy the same profit margin and not having to raise its prices to pay the tariff tax—the sort of bullying tactic it’s well known for: Walmart’s unethical business practices are well known yet people still patronize the business because of the lower prices it offers thanks to those practices. China, however, has a strong union of producers that’s integrated with the government and has the power to resist. What follows is a Global Times Editorial dealing with that issue, “Hopefully, Walmart will honor its words and work together to maintain a stable supply chain” that lectures the business and also Team Trump since it’s the root cause of the disorder that has no logical basis:

At a regular press conference on Thursday, a spokesperson of the Ministry of Commerce of China responded to reports that "Walmart had been summoned for talks by China's Ministry of Commerce and other departments." The spokesperson stated that the relevant departments had inquired with Walmart about the situation and that Walmart had also provided an explanation. Earlier, multiple media outlets reported that Walmart demanded significant price cuts from some Chinese suppliers, allegedly attempting to pass on the burden of the new round of US tariffs on China to Chinese suppliers and consumers. The China Chamber of Commerce for Import and Export of Textiles also responded on Wednesday, stating that it had received complaints from its members that certain major US retailers were pressing Chinese suppliers to cut prices, and that it is verifying these claims and will take action to protect the legitimate interests of its members if the situation is confirmed.

Last week, Bloomberg reported that due to the US imposing a 10 percent tariff on Chinese goods twice, Walmart demanded that its Chinese suppliers—including producers of kitchenware and clothing—accordingly lower their prices. This unilateral and sudden demand for price cuts may violate the price clauses in commercial contracts, constituting a breach of contractual spirit. In the face of the US government's unilateral tariffs against China, Walmart is also a victim; a more rational approach, however, would have been to engage in fair, reasonable, and amicable negotiations with Chinese suppliers to overcome difficulties together, rather than resorting to temporary price cuts aimed at shifting the entire tariff burden onto them. As a purchaser, Walmart's actions have disrupted normal market order and may pose risks to the supply chain. The summoning of Walmart by the relevant Chinese authorities is intended both to safeguard the legal rights and interests of Chinese enterprises and to maintain a fair and just market environment.

Walmart is the world's largest retail enterprise, and China is one of its most important markets and supply chain components. Having operated in China for over 20 years, Walmart, including Sam's Club, has expanded its business to more than 100 cities with over 300 stores. In the past fiscal year, its sales growth in the Chinese market far exceeded that of the US market. More importantly, approximately 60 percent of the products in Walmart's global business are supplied by Chinese vendors. Without Chinese suppliers, more than half of Walmart's shelves would be empty.

Walmart's experience in China reflects the objective reality of mutual benefit and win-win cooperation between China and the US in the supply chain. As a multinational corporation that has operated in China for many years, Walmart has fully enjoyed the benefits of China's economic growth and expanding consumer market. These achievements are not only the result of Walmart's sound management but also stem from China's world-class business environment, characterized by marketization, the rule of law, and internationalization. Reports indicate that Walmart will continue to increase its investment in China this year, with store expansion and local distribution cooperation projects underway. This demonstrates that its commitment to a sustained presence and long-term development in China has not changed. We are pleased to see multinational companies like Walmart succeed in China, but such success must be based on compliance with market rules and valuing partnerships. Since Walmart benefits from China's market environment, it has a responsibility to work with Chinese suppliers to cherish and maintain this environment. Attempting to shift unreasonable costs onto Chinese suppliers is not only unethical but also unlikely to withstand the test of the market.

Of course, the root of the Walmart issue lies in the US' misguided tariff policy. It is well known that Walmart's brand value is closely tied to its low-price strategy, making the company a direct victim of the US additional tariffs imposed on China. As the two largest economies in the world, China and the US have highly complementary industrial and supply chains. The trade war not only weakens the space for bilateral cooperation but also poses a threat to global economic stability. According to estimates by the Peterson Institute for International Economics, approximately 90 percent of the cost of tariffs levied on Chinese goods is borne by American consumers and businesses. Another recent poll showed that nearly 60 percent of US adults expect the tariffs will lead to higher prices. Neither Chinese suppliers nor American consumers should become victims of misguided tariff policies. If the US truly wants to alleviate the burden on American businesses and consumers, it should promptly eliminate the high tariffs that contradict economic principles.

Walmart is a beneficiary of global free trade and should understand that maintaining the free trade system is not only a corporate social responsibility but also a fundamental guarantee for its own development. The two major economies, China and the US, play a crucial role in ensuring the stability and fairness of the international market and in promoting global economic recovery. In the face of the current challenges, both sides should adopt an open and cooperative attitude, strengthen communication and coordination, resolve differences through dialogue and consultation, avoid unilateralism and protectionist measures, enhance the resilience and flexibility of supply chains, and create a fairer, more transparent, and predictable business environment for enterprises in both countries.

According to foreign media reports, Walmart representatives said at the Tuesday meeting that China's supply chains were key to its global success and that they would work with Chinese suppliers to find ways to avoid damaging the interests of the parties involved. Hopefully Walmart will demonstrate sincerity, follow through on its commitments, stop unilateral demands for price cuts, and work hand in hand with Chinese enterprises to tackle the headwinds of trade protectionism. [My Emphasis]

It’s really a hoot to read China lecturing Walmart and its Outlaw US Empire patron about free market enterprise and responsible business ethics. The large, emphasized portion of the second to last paragraph is directly aimed at Trump, but since he uses New York Mob Boss Bullying techniques without regard to whom he’s applying them to makes it very unlikely he’ll listen to reason and do the right thing. Why no more US-located factories produce the goods Walmart sells is directly related to the fact that Walmart operates in an oligopolistic market. Trump might try focusing on correcting that big problem first along with the vulture financiers that caused the situation in the first place. But since Mr. Trump comes from that faction of financiers, that’s very unlikely to happen. So, what we’ll see is a continuation of his Trade War against the World because his faction demands more rents, and to hell with the US Economy and its citizen consumers.

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