President Donald Trump’s tariffs on $200 billion worth of Chinese goods will not only hurt China, but also U.S. retailers that sell products made in China.
That’s why in Thursday’s earnings report, Walmart President and CEO Doug McMillon addressed such concerns. Walmart delivered strong quarterly results, reporting its best U.S. sales growth in more than a decade and a 40% surge in e-commerce sales, sending the stock (WMT) soaring 10% on Thursday morning. But uncertainties about the impact of tariffs on Walmart still haunt investors. In a prepared statement, McMillon said Walmart is actively working on mitigating the effects of escalating tariffs but it’s difficult to quantify their future impact.
McMillon also tried to comfort investors by emphasizing Walmart’s local sourcing strategy. “It’s important to remember that in all of our markets where we have stores and e-commerce operations, the majority of Walmart’s merchandise is purchased locally in that country. In fact, we buy more merchandise, by a wide margin, in the U.S. than from any other country,” he said.
What McMillon is saying is that Walmart sources most of its products, in about 5,000 U.S. stores, within the country. It’s common for retailers to locally source goods to reduce costs. But there is a major caveat — buying from suppliers in the U.S. doesn’t necessarily mean the products are made in the U.S. Walmart suppliers import goods from all over the world, and a large chunk of electronics, tools, housewares and other consumer goods are manufactured in China, which could be subject to the new round of tariffs.
Walmart doesn’t break down how much of its products are imported from China. Products made in the U.S. now account for about 20% of non-food products in Walmart, according to the research firm GlobalData. While Walmart is trying to increase that percentage and source more items from countries not affected by proposed tariffs, changing the supply chain is hard to do over a short period of time.
“Margins in the supply chain are already very tight so there is not much room for flexibility,” said Neil Saunders, managing director of retail at GlobalData. “The bottom line is that Walmart will be impacted by tariffs, just as most retailers will be. If it doesn’t want to pass the cost on to consumers, then it will have to absorb the increase and accept lower margins.
Krystal Hu covers technology and economy for Yahoo Finance. Follow her on Twitter.