Maybe I’ve misunderstood how retail businesses are supposed to operate, but I was always led to believe that the cost of goods should not exceed actual revenues.
Yet that fundamental principle is essentially what President Trump is ordering retailers such as Walmart to abandon as they grapple with the 30 percent tariff on goods from China, as well as various duties on items from Vietnam, Canada, Mexico and other major sources of products for the U.S. market. Walmart should “eat the tariffs,” the president demanded recently on Truth Social, his social media site.
Then we have the head of the Small Business Administration, Kelly Loeffler, who on a visit to a factory in Georgia pronounced that “the top concern is not tariffs,” implying that a 30 percent tariff will free it from evil Chinese communist suppliers. The chief executive of the company wasn’t quite buying it: “Manufacturing is a global supply chain,” she noted. One that is now more costly.
Walmart seemed to have offended Mr. Trump by announcing that it would have to raise some prices given the chaos he has caused. But it’s only fair that a company would warn its customers of price increases and explain the reasons for them. And in the end Walmart, like other resellers, will indeed eat some of those tariffs: According to UBS Global Wealth Management, a 10 percent tariff translates to a 4 percent price increase at retail.
For Walmart, which sources many of its goods from Asia and particularly China, there isn’t much wiggle room given how the company operates. From the beginning, it has won customers and generated profits by keeping costs at a minimum — including labor and overhead — and by squeezing vendors. Any ripple in that equation and the business model doesn’t work for the company.
A 30 percent tariff isn’t a ripple; it’s a wave. So Walmart has warned it may raise prices, as has another big retailer, Target.
