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Walmart Sends Fresh Warning That Tariffs Will Hit U.S. Shoppers' Pocketbooks

By Jeremy Bowman - Updated May 16, 2019 at 2:42PM

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The retail giant said it's working to deal with the latest round of import taxes related to the trade war with China.

Walmart (WMT -0.61%) is the world's biggest company by revenue and the largest private employer on the globe. When it talks, especially about the global economy, investors and other interested parties tend to take note of what's said.

So it wasn't surprising that Walmart's comments on tariffs Thursday morning were attracting attention. Walmart has addressed the ongoing trade tensions between the United States and China (as well as other countries around the world) several times before. But its latest remarks may potentially catch the attention of the Trump administration as it works to resolve its trade dispute.

On the earnings call, CFO Brett Biggs said briefly, "We're monitoring the tariff discussions and are hopeful that an agreement can be reached." He later elaborated, telling Reuters that the latest round of tariffs will lead to higher prices for U.S. consumers. Biggs said Walmart will seek to mitigate the issue by potentially obtaining products from different countries and working with suppliers’ "costs structures to manage higher tariffs."

A Walmart truck on the road.

Image source: Walmart.

Where the dispute currently stands

Last Friday, the Trump administration raised tariffs on $200 billion worth of goods imported from China from 10% to 25%. The goods affected are wide-ranging and include food, raw materials like wood and metals, plastics, electronics, and furniture. The administration also threatened to add tariffs on the remaining $325 billion worth of goods from China. This includes categories like clothing, smartphones, cameras, and toys.

China retaliated, saying it would impose tariffs on $60 billion worth of American-made goods starting June 1. China imports less from the U.S. than it exports, so it can't impose as much in import taxes as the U.S. can. Most major stock indexes fell when tensions flared again but have recovered some of their earlier losses.

Walmart isn't the only retailer to weigh in on the latest round of tariffs. On Wednesday, Macy's CEO Jeff Gennette said tariffs on items like clothes and shoes would almost certainly have an impact on shoppers. As retail earnings season rolls on, expect similar comments from other retail leaders.

No surprise here

Over the last generation, the retail supply chain for clothing, electronics, and home goods has been broadly outsourced to low-cost manufacturing companies in places like China, Vietnam, and Mexico. As a result, retailers almost universally oppose tariffs, which raise costs on imported items that they must then either absorb themselves or pass on to their customers.

More than a year ago, more than 100 retailers, including Walmart, Nike, Target, and Levi Strauss, signed a letter urging the president to back off from tariffs on China, saying it would only hurt American consumers and the economy.

Nonetheless, the Trump administration has made trade a signature issue and claims it is worth the short-term sacrifice of some if it helps resolve long-term problems like Chinese intellectual property theft and anticompetitive practices.

At least one retailer wasn't expressing much worry regarding the tariffs this week. Chinese tech giant Alibaba (BABA -0.19%) in its earnings report Wednesday sought to play down the impact of the trade war and reassure investors. Alibaba management says that China was already moving to accommodate many of the Trump administration's demands by getting stricter about intellectual property protection and narrowing the trade gap with the U.S.

As for Walmart itself, investors weren't dissuaded by the trade war comments, as the stock was up 3% in afternoon trading. The company beat earnings estimates and showed off strong comparable sales growth at Walmart U.S. stores. Biggs, the CFO, noted that he's yet to see an impact on consumer spending from the earlier round of tariffs. Because more than half of Walmart's revenue comes from groceries, many of which are produced in the U.S., Walmart isn't as sensitive to tariffs as retailers like Macy's and Target are. This gives the company a bit of a cushion relative to some of its peers.

Still, it's worth keeping an eye on the company's comments on tariffs and the greater trade war. With 1.5 million American employees and control of nearly 10% of the nonautomotive retail spending in the U.S., Walmart has significant influence over the U.S. economy, and it's a useful barometer for investors to track the country's greater economic health.

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