China is turning up pressure on Walmart. That could mean higher prices for US customers

New York (CNN) — Walmart thought it could use its immense power as America’s biggest retailer to make Chinese suppliers eat the cost of President Donald Trump’s tariffs. But Walmart got a response it’s not accustomed to hearing: No.

Trump has slapped 20% tariffs — or taxes on imported goods — on all products coming from China. That’s put the squeeze on retailers like Walmart, which imports a lot of merchandise from China and sells those goods at the lowest price possible to American consumers. Walmart, in turn, has tried to pressure its Chinese suppliers to lower prices. But the Chinese government is having none of it.

The strong reaction from the Chinese government reveals how American companies are caught in the middle of an escalating trade war between the United States and China. While customers in the United States want low prices, that could be hard for Walmart to achieve if the Chinese government is stepping in, trade experts say. And if a company even as strong as Walmart struggles to hold down prices, it means that much smaller companies are going to be hurting, too.

Chinese officials said this month that they requested local Walmart executives speak to them following a report that the company had asked some Chinese suppliers, including kitchenware and clothing suppliers, to lower prices by as much as 10% for each round of US tariffs.

“Our relevant departments have reached out to Walmart to further understand the situation, and the company has provided an explanation,” He Yongqian, a spokesperson for the Commerce Ministry, told a press briefing earlier this month, without providing further detail.

A Walmart spokesperson said that the company’s “purpose is to help people save money and live better. Our conversations with suppliers are all aimed at making our purpose a reality for millions of customers, and we will continue to work closely with them to find the best way forward during these uncertain times.”

Walmart can either raise prices, risking a rebuke from US consumers that would impact its own bottom line, or press suppliers — risking the ire of the Chinese government. The Chinese backlash also contradicts US Treasury Secretary Scott Bessent’s prediction this month that Chinese manufacturers will “eat the tariffs” and prices for US consumers “won’t go up,” trade experts say.

“What this is signaling is that the Chinese government is saying, ‘We’re not going to pay for this tariff. US consumers are going to pay for it,” said Thomas Hoenig, a fellow at the Mercatus Center at George Mason University and former president of the Federal Reserve Bank of Kansas City.

Tariffs come at a challenging time for US consumers and the retail industry and could add to the pressure.

Shoppers are dialing back on airline travel, major home renovation projects, clothing and snack food. Spending at US retailers last month was also much weaker than expected, in a troubling sign of strain on shoppers. Retail sales rose 0.2% in February from the prior month, the Commerce Department said Monday.

Weak consumer spending figures are adding to concerns that the US economy is slowing - and perhaps heading into a recession.

Walmart navigating tariffs

Walmart has long used its scale and bargaining power to drive down prices for consumers.

But Walmart’s strategy to keep prices down by compelling Chinese suppliers to make concessions is vulnerable against any resistance from the Chinese government. The company sources an estimated 20% of its goods from China, analysts estimate.

“It’s a national statement, not a supplier statement. China is potentially saying enough is enough,” said Joseph Jurken, founder of ABC Group, a consultancy that helps businesses manage supply chains in Asia. “Trump has been saying it’s a tariff on China. China may have drawn a line in the sand.”

And it’s not just Walmart’s business in the United States at stake.

Walmart also has a strong retail presence in China, including its Sam’s Club warehouse chain of stores. Last year, Walmart’s sales in China rose by 16% to $17 billion.

The company’s business in China could be damaged if the Chinese government continues to exert pressure, experts say.

Still, Walmart is in better position to handle tariffs than most companies, said Michael Baker, an analyst at financial firm DA Davidson. That’s because two-thirds of what Walmart sells is made in the United States.

And for imports, Walmart has a wide base of suppliers in more than 70 countries, so the company is not reliant only on China.

While Trump has slapped tariffs on Canada, Mexico and European countries, that will impact Walmart less than tariffs on China, Baker said. Walmart imports fewer products from these countries and their governments may be less likely to pressure Walmart directly than China.

“The Chinese government has more sway over suppliers,” Baker said. “Businesses are less controlled by government” in Canada, Mexico and the European Union.

Retaliation against US companies

The Chinese government’s response to Walmart is the latest form of pressure against the United States and American companies.

China has announced a fresh round of retaliatory tariffs against the United States, covering US agriculture imports, which took effect last week.

And last month, the Chinese government announced a broad package of economic measures targeting the United States. China’s State Administration for Market Regulation said it was initiating an investigation into Google for suspected violation of its anti-monopoly laws. The company, whose search engine is not available in China, has minimal operations in the country.

China’s Ministry of Finance also placed PVH, the parent company of Calvin Klein and Tommy Hilfiger clothing brands, on its “unreliable entities list,” essentially a blacklist of companies. US biotech company Illumina was also added to the blacklist.

PVH criticized the decision and said it would work with Chinese authorities to resolve the situation.

Being added to the “unreliable entities” list could bar PVH from doing business in China or lead to fines or other penalties, experts say.

CNN’s John Liu and Juliana Liu contributed to this article.

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