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American companies are negotiating price cuts from Chinese suppliers, competing to shift production and raise prices for US consumers. This is increasing prices for US consumers to tackle President Donald Trump’s 20% tariffs on Chinese products and prepare for more.
Trump has campaigned with a promise of a 60% obligation on Chinese products, and the White House could impose additional taxes on imports from China on April 2, when it announces “mutual tariffs” in countries around the world.
It is unclear how high the tariffs are, but US and Chinese companies are looking for workarounds and are rethinking their supply chains to reduce their dependence on China.
“Getting cost concessions from vendors” tops the list, Jeff Howey, chief financial officer of home furniture retailer Williams Sonona, told investors this month.
Howie said the company has continued to shift its procurement from China, cutting its Chinese-made goods from 50% of its inventory in 2018 to 23%. He also said they would expand production in the US, “taking over a price rise targeted to customers.”
The owner of the ceramic barn is one of the US retailers taking action. Costco and Walmart have already requested price cuts from their suppliers, the latter being carried by Chinese authorities to explain their ideas.
The demand for price cuts highlights the fact that large companies have built greater resilience and flexibility in their supply chains, along with a move to change production elsewhere, following Trump’s first trade war and the Covid-19 pandemic.
The US and Chinese companies said the latest tariffs have accelerated the drive for diversifying production, which began during Trump’s first term.
“The 2017 customs round certainly took action. We are in a different position than we were back then,” Richard McPhail, chief financial officer of Home Improvement Giant Home Depot, told the Financial Times.
Home Depot Chief Ted Decker added that many of its suppliers have moved several manufacturing industries from China over the past seven years. About a third went to Southeast Asia, a third went to Mexico and a third to the US, he said.
Elegant Hometech is a Chinese manufacturer that has installed vinyl flooring in the US, including Home Depot warehouses, and began construction of the factory in Mexico in 2023 after Trump’s first tariffs.
The $60 million factory will begin delivering flooring to the US this summer, and the company manager said it is asking them not to name it. The group hopes it won’t get caught up in a crossfire of US-Mexican trade tensions.
“Everything is uncertain,” the manager said. “This is difficult for manufacturers, for importers and retailers.”
Elegant Hometech is negotiating with customers how to share additional tariff burdens. This includes Trump’s first term and 25% from the usual 5% rate.
“Our profits are very small,” the manager said. “It’s impossible to pay all the tariffs. We’ll probably split the costs. I think the prices (in-store) will also rise.”
Chinese pet food manufacturer Petpal Pet Nutrition Technology told investors that its Vietnam and Cambodia factories “currently can take over orders from American customers fully,” and that they “will not be affected by tariffs.”
Similarly, Glove, a Chinese battery-powered tool manufacturer, said, “The Vietnamese factory has essentially achieved a full coverage of exports to the US.”
The problem for companies shifting production elsewhere is that they don’t know who will be hit by tariffs next. Trump has said the only surefire way to avoid tariffs is to move production to the US.
“We’ve seen a lot of people enjoy this product,” said Jay Schottenstein, CEO of clothing brand American Eagle. “We don’t know what will happen in Vietnam, we don’t know China, we don’t know India. Bangladesh doesn’t know.”
“We’re not going to fly around until we know exactly what the story is,” he told analysts.
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Still, American Eagle executives have already spent months preparing and said they plan to reduce China’s procurement to “single numbers” by the second half of this year from the current “teens” percentage.
For retailers, especially those who rely heavily on Chinese manufacturing, their effects will be more damaging.
Discount retailers, which source around 60% of their products from China, expect to reach the gross margin margin for the year despite their best efforts to mitigate its impact.
Five finance chiefs Kristy Chipman told analysts that the group is considering renegotiating prices with suppliers, shifting production and increasing in-store prices.
“The width and size of the recently announced tariffs are important,” she said.
Additional reports by Nian Liu and Wenzi Ding of Beijing and Thomas Hale of Shanghai
