Officials met representatives of the US retailer to discuss its treatment of Chinese suppliers following the imposition of import duties
China has summoned executives of Walmart for regulatory talks, bringing the business practices of one of the United States’ most prominent companies under scrutiny and – in the wake of tariff increases from US President Donald Trump – suggesting more punitive action could come in advance of bilateral trade negotiations.
Officials from the Ministry of Commerce and other authorities in Beijing held discussions with representatives of the company on Tuesday to address rumours the world’s largest retailer is demanding some of its Chinese suppliers significantly lower their prices.
This, according to Yuyuantantian – the social media account of state broadcaster CCTV – would shift the cost of new US tariffs imposed on Chinese goods to domestic suppliers and consumers.
“Walmart’s unilateral demand on Chinese firms to cut prices could lead to disruptions of supply chains and hurt the interests of firms and consumers from both countries,” the account said.
“If Walmart insists on doing so, then what would happen next would be beyond talks.”
Washington slapped an additional 10 per cent in tariffs on all Chinese products on February 4 – shortly after Trump was sworn into office – and imposed another 10 per cent a month later.
Beijing initially fought back with tariffs on selected American goods, including 10-15 per cent duties on some farm products, export restrictions on selected US firms and a formal complaint with the World Trade Organization.
“This is what a trade war looks like – pricing slugfests that attempt to pass on the artificial costs to someone, anyone,” said James Zimmerman, a lawyer based in Beijing and former chairman of the American Chamber of Commerce in China.
“At the end of the day, everyone loses – but mostly the American consumers who will eventually foot the bill for this misguided trade policy.”
Bala Ramasamy, an economics professor at the China Europe International Business School in Shanghai, said the burden of the additional tariffs has to be shared between Walmart’s Chinese suppliers and American consumers.
“If the Americans are not able to find any other substitute from other countries, Vietnam and so on, then obviously the share of the burden for Chinese suppliers would probably be less,” he said.
Jin Xu, chairman of the China Association of International Trade, said the ministry’s move shows Beijing has the “confidence” and “sufficient tools” to cope with US tariffs.
“In practical terms, as of now, it should be said that China holds the initiative, not the United States,” Jin said.
US tariff increases on Chinese imports disrupted the market, Jin said, so it is “unreasonable” for Walmart to shift the burden to Chinese suppliers, whose products are already highly competitively priced.
“This violates business ethics. Instead, Walmart should work with its Chinese counterparts to help correct the US government’s unilateral tariff hikes,” he said.
Despite the heightened tensions, anonymous sources said both countries have been discussing a summit between Trump and Chinese President Xi Jinping. At present, the talks are expected to be held in April, though specific dates have yet to be finalised.
The China Chamber of Commerce for the Import and Export of Textiles, a semi-official trade organisation, said in a statement on Wednesday it has received reports from some of its members that large US retailers have asked Chinese suppliers to reduce their prices, and is verifying the claims.
“If the situation is true, we’ll take active measures to safeguard the legitimate interests of member companies,” the chamber said.
Issues currently affecting international trade stem largely from the US government’s unilateral imposition of tariffs, the chamber said, adding this has adversely affected businesses in both countries.
“Companies in China and the US are both victims,” the chamber stated, expressing expectations firms from both nations will address shared challenges through negotiations and cooperation.
The chamber also urged these companies to prevent any single party from disrupting the stability of supply chains by exploiting its market position.
Alongside China’s declaration it would fight any conflict initiated by the US “to the end”, the country has attempted to address long-standing economic issues to strengthen its position.
In the annual government work report unveiled last week, Premier Li Qiang vowed a “comprehensive crackdown on neijuan”, the first time this concept has been mentioned in the agenda-setting address.
The term neijuan, or “involutionary competition,” refers to a vicious cycle where companies feel compelled to invest more resources and intensify production despite diminishing returns. It is often used to describe the excess capacity and downward spirals plaguing a number of industries, including electric vehicles and solar energy.
“Chinese companies are already struggling with domestic price wars, which are eating into profit margins in ways that have implications for hiring, wages, future expansion plans and other operational considerations,” said Nick Marro, principal economist for Asia at the Economist Intelligence Unit.
“For many companies, there might not be much more room to cut prices – particularly at a time when Chinese policymakers are attempting to reflate the economy, and break out of this deflationary price spiral.”
Alicia Garcia-Herrero, chief Asia-Pacific economist at French investment bank Natixis, warned that putting pressure on American companies may cast doubts on China’s pro-business rhetoric.
“I think this is bad news. Yes, they do not want price competition, but why Walmart?”
The big box giant has 283 outlets and 53 Sam’s Club wholesale stores in China. Its sales revenue in the country totalled US$20.3 billion in the financial year ending January 31, according to company disclosures.
