Costco is exerting pressure on its suppliers in mainland China to lower prices in response to escalating US tariffs, a move that adds to the growing risks of scrutiny from Beijing amid intensifying political tensions between the two countries. The US retail giant, which relies heavily on Chinese imports, has requested price cuts from its suppliers, mirroring similar actions taken by other top retailers like Walmart, according to suppliers familiar with the situation.
In February 2024, the US administration imposed an additional 10% tariff on Chinese goods, which was then raised to 20% earlier this month. These tariff hikes have placed increasing pressure on US companies to mitigate the impact on their profit margins, with retailers like Costco seeking to pass on cost reductions to maintain their bottom lines.
One supplier explained the difficult position they face: “The big ones, they have the muscle to do it. What do you do if you’re us? You’re screwed or you’re screwed.” The fallout from these trade measures is particularly sensitive in mainland China, where many suppliers, already operating on slim margins, are struggling to cope with years of tariffs and the potential for more in the future.
Walmart, another major US retailer, was recently summoned by China’s Ministry of Commerce to discuss reports of similar requests for price cuts. Walmart, which has expanded significantly in China through its Sam’s Club membership model, has a presence in over 100 cities across the mainland. In contrast, Costco, which opened its first warehouse in mainland China in 2019, has seven locations, with plans for cautious expansion. Suppliers in China indicate that Costco will likely tread carefully following Walmart’s discussions with the Chinese government.
Costco declined to comment on the issue. Meanwhile, Walmart stated that it sources products from 70 countries, promoting job creation and supporting local economies through its global supply chain. He Yongqian, spokesperson for China’s Ministry of Commerce, confirmed that the discussions were prompted by media reports and feedback from companies. However, the statement from the ministry emphasized that the situation was not a reprimand but a reflection of rising national tensions.
State media in China has begun framing these issues through a nationalistic lens, with outlets like CCTV-affiliated Yuyuantantian urging that “China should not bear the blame for US tariffs.” The broader sentiment reflects the growing willingness of Chinese authorities to act against US companies with operations in the country in response to trade measures, as seen earlier this year with the addition of PVH (owner of Calvin Klein and Tommy Hilfiger) to a Chinese blacklist.
For many US companies, the pressure to reduce product costs is a longstanding issue. However, the current environment has sparked concerns over whether such price-cutting demands are reasonable, especially given the potential impact on product quality. In addition to seeking price reductions, large US retailers are increasingly diversifying their supply chains away from China to reduce geopolitical risks. Target, for instance, has significantly reduced its reliance on China for its own-brand production, from 60% in 2017 to 30% today, with plans to decrease it further to 25% by the end of next year.
Costco’s recent quarterly report acknowledged the impact of tariffs on its merchandise costs, particularly in relation to China, Canada, Mexico, and the US. The company expressed concerns that higher tariffs would likely have a negative impact on its financial performance rather than improve it.
As the trade war between the US and China continues to evolve, Costco and other major US retailers are navigating the difficult balance of managing costs while maintaining their presence in one of the world’s largest consumer markets. The ongoing tension between tariff pressures and supply chain diversification strategies will remain a critical challenge for these companies in the months ahead.
