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Walmart has warned Americans will pay higher prices because of Donald Trump’s trade war, despite this week’s deal between the US and China to slash punitive tariffs.
The world’s biggest retailer is particularly exposed to the president’s sweeping global trade levies. A third of the goods it sells in the US come from other countries, with China one of its largest sources of imports.
Washington and Beijing agreed this week to a cut in tariffs for 90 days, reducing US levies on Chinese imports to about 40 per cent, from as high as 145 per cent.
Doug McMillon, Walmart’s chief executive, said the reprieve was not big enough to avert price rises for its hundreds of millions of customers.
“We will do our best to keep our prices as low as possible, but given the magnitude of the tariffs, even at the reduced levels announced this week, we aren’t able to absorb all the pressure,” he said. “The higher tariffs will result in higher prices.”
Walmart sells about a quarter of US groceries, and has long served as a benchmark for the lowest overall prices in the industry.
McMillon was among the retail bosses to argue against tariffs at the White House last month, warning Trump of higher prices and empty store shelves.
Trump pulled back from the trade war under pressure from business leaders and a market rout. He paused sweeping levies on dozens of trading partners in April after a week, and has promised a rush of new trade deals.
The deal with China, which followed an agreement with the UK last week, marked Trump’s most significant climbdown.
But McMillon said the retreat would not be enough to protect US consumers from price increases, threatening the economy and a resurgence of inflation.
Walmart would try to keep a lid on food prices after years of grocery inflation, McMillon said. But he said there were new tariff pressures for products it needs to import, such as bananas from Costa Rica and coffee from Colombia.
The warning from McMillon on Thursday came as Walmart reported a 4.5 per cent annual increase in comparable sales at its namesake US business in the three months to the end of April, surpassing the 3.7 per cent rise forecast by Wall Street analysts, according to Visible Alpha.
The retailer maintained its financial guidance for the full year, which includes a projection of 3 to 4 per cent growth in net sales. However, it withheld guidance on profits in the second quarter, citing the uncertain trade picture. Shares fell less than 1 per cent.
John David Rainey, chief financial officer, said it was difficult to predict how consumers would react to the tariffs, and what level of price rises would start to reduce demand.
The heavy tariffs on China were already raising prices for products including electronic and toys, McMillon said.
The Walmart boss said cost pressure began in April, and increased in May. He said price increases for goods other than groceries were likely to continue all year.
Walmart will try to shift the sourcing of manufactured goods away from tariff-hit locations and change some product components, such as using fibreglass instead of aluminium, a metal subject to US duties.
Mexico, Canada, Vietnam and India are major sources of Walmart’s imports, alongside China.
Walmart is the first big-box retailer to report earnings since Trump’s April tariff announcements. Target and Home Depot will follow next week.
Amazon this month warned tariffs and trade policies posed risks to earnings, but the company did not report any slackening of demand or any significant rise in average selling prices on its platform.
Walmart reported that its ecommerce business — which includes sales from its own inventory and from third-party merchants using its platform — grew 22 per cent year on year and was profitable in both the US and globally for the first time.
Trade war jitters prompted shoppers to speed up purchases of some items in an attempt to beat the tariffs, potentially distorting the picture of consumer demand.
Walmart reported quarterly revenue of $165.6bn, up 2.5 per cent year on year and slightly below forecasts of $166bn, according to Visible Alpha. Net income fell 12.6 per cent to $4.6bn, marginally more than the consensus.