As the landscape of US-China trade relations continues to shift with increased tariffs, retail behemoths Costco and Walmart are adopting similar strategies to mitigate the financial impact: demanding price cuts from their Chinese suppliers. This move is placing immense pressure on Chinese exporters, particularly smaller businesses already struggling with tightened margins.

The recent surge in tariffs, now reaching 20% on certain Chinese goods, has forced American companies to reassess their sourcing strategies. Costco, like Walmart, is passing on a portion of the increased costs to its suppliers.

According to media reports, Costco is actively seeking price reductions, echoing Walmart's approach. A supplier speaking to the Financial Times highlighted the disparity in bargaining power, stating that while larger suppliers might absorb some of the costs, smaller ones face significant risks, potentially being "screwed" in the process. Costco has yet to publicly comment on these claims. Recently, Costco has also increased its membership fees. This is a direct price increase that effects all its members.

Costco's CEO, Gary Millerchip, acknowledged the tariff impact in December 2024. He revealed that the company had taken proactive steps, such as accelerating inventory purchases, to navigate potential supply chain disruptions. Millerchip also suggested that if imported items become less competitive due to tariffs, Costco would seek alternative, better-value products. Notably, approximately a quarter of Costco’s business stems from non-food items, many of which are imported.

Furthermore, Millerchip hinted at the possibility of raising prices for US members, recognizing that "tariffs raise costs." However, he emphasized that this was not a desirable outcome. Costco's relatively small presence in China, with only seven warehouses compared to over 600 in the US, underscores its reliance on imports.

Walmart, with its extensive network of over 330 locations in China, has faced direct scrutiny from China’s Ministry of Commerce. Chinese officials, during a meeting in Beijing, criticized Walmart for shifting the tariff burden onto its Chinese suppliers, labeling it "unfair and irresponsible," according to the Wall Street Journal. Walmart, in response, reiterated its commitment to working with suppliers to maintain low prices while urging all parties to find common ground to avoid price increases.

The escalating trade tensions are prompting some retailers to diversify their supply chains. Target, for instance, has significantly reduced its reliance on Chinese manufacturing, decreasing its dependence from 60% to 30% in recent years.

The dynamic between Costco and Walmart extends beyond trade policies. Earlier this year, both companies found themselves at odds over their Diversity, Equity, and Inclusion (DEI) initiatives. While Costco reaffirmed its commitment to DEI, Walmart announced a scaling back of its efforts. These contrasting approaches highlight the complex and multifaceted challenges faced by major retailers in today's global market.