Costco pressures China suppliers for lower prices

Costco is facing challenges with price increases from suppliers in mainland China due to escalating U.S. tariffs. The warehouse retailer has asked these suppliers to reduce prices to help mitigate the financial impact of the tariffs. Other major U.S. retailers like Walmart have made similar requests. In February 2024, the U.S. government imposed a new 10 percent tariff on Chinese goods, which was later raised to 20 percent. This puts pressure on U.S. companies to protect their profits, as many rely heavily on imports from China. Suppliers in China are struggling to maintain their margins and are concerned about additional tariffs. Walmart was recently called in by China's Ministry of Commerce to discuss its pricing requests. Walmart has been expanding in China, running more than 100 Sam’s Club locations. Costco has opened seven warehouses in mainland China since 2019. A supplier indicated that companies must tread carefully in light of these discussions. China’s government has reacted strongly to U.S. tariffs, stating they should not be blamed for the situation. The media has also highlighted the growing sensitivity around trade relations. There is an increased likelihood that China will take action against U.S. companies operating locally, as seen with the recent blacklisting of PVH, the owner of Calvin Klein. To reduce their dependence on China, many U.S. retailers are diversifying their supply chains. For instance, Target has cut its production in China from 60 percent of its brands to 30 percent and plans to reach 25 percent by next year. Costco acknowledged that tariffs are affecting some merchandise costs in its latest financial report, predicting that higher tariffs will adversely impact their results.