In This Story
Costco is reportedly demanding price cuts from its Chinese suppliers as U.S. tariffs continue to take a toll.
With rising import costs due to tariffs, Costco (COST-0.05%) – along with major U.S. retailers like Walmart – is trying to get suppliers to absorb some of the hit. This has placed additional pressure on Chinese exporters, who are already grappling with years of tariffs and razor-thin margins.
The recent increase in tariffs by the Trump administration to 20% on Chinese goods has forced U.S. companies to find ways to protect their bottom lines. Many are seeking price reductions, but suppliers are resisting.
One Costco supplier told the Financial Times that larger suppliers have the “muscle” to weather the additional costs, but smaller suppliers are at risk of getting squeezed, and ultimately, “screwed.” Costco did not immediately respond to Quartz’s request for comment.
In Dec. 2024, Costco CEO Gary Millerchip acknowledged the impact of tariffs, noting that the company had taken steps like pulling forward inventory purchases to stay ahead of supply chain disruptions. Millerchip also indicated that if certain imported items became less competitive due to tariffs, Costco would replace them with better-value alternatives. Roughly a quarter of Costco’s business comes from non-food items, with a portion of those imported.
Millerchip also hinted at the possibility of raising prices for U.S. members, stating that “tariffs raise costs,” though he added that this would not be a positive outcome. Costco’s footprint in China remains relatively small with just seven warehouses, compared to over 600 U.S locations.
Walmart (WMT+0.29%), another major U.S. retailer that heavily sources from China, recently came under scrutiny from China’s Ministry of Commerce after similar price-cutting requests were made. During a meeting in Beijing, Chinese officials criticized Walmart for shifting the tariff burden onto Chinese suppliers, calling it both unfair and irresponsible, according to the Wall Street Journal (NWSA+1.23%).
Walmart, which operates over 330 locations in China, told Quartz in an email that it would continue working with suppliers to “keep prices low,” while urging all parties to find common ground to prevent prices increases.
Meanwhile, some large retailers are moving to reduce their reliance on Chinese manufacturing. Target, for example, has cut its dependence on China from 60% to 30% in recent years, signaling a shift towards diversifying supply chains amid ongoing geopolitical tensions.
As the U.S.-China trade war escalates, retailers like Costco and Walmart find themselves caught in the middle. Earlier this year, both retailers also found themselves at odds over their Diversity, Equity, and Inclusion (DEI) initiatives. While Costco stood by its DEI plans, Walmart announced it would scale back its efforts. For now, these complexities in the global market are pushing major U.S. retailers to seek safer, more diversified supply chains.
