Let Them Eat Tariffs

President Trump ushered in Memorial Day weekend by threatening Apple with a 25% tariff if it didn’t move production of its iPhones back to the U.S. from overseas. Analysts quickly noted that it wouldn’t be a big enough financial hit to Apple to sway its current approach. It was the latest example of the president using the cudgel of tariffs to threaten an American company. 

In mid-May, President Trump posted on social media: “Walmart should STOP trying to blame Tariffs as the reason for raising prices throughout the chain. Walmart made BILLIONS OF DOLLARS last year, far more than expected. Between Walmart and China they should... EAT THE TARIFFS, and not charge valued customers ANYTHING. I’ll be watching, and so will your customers!!!”

His comments came a couple of days after Walmart conducted its quarterly earnings call, during which CEO Douglas McMillon said the company expected to raise some prices as a result of President Trump’s tariffs.

A day after the president’s post, Treasury Secretary Scott Bessent appeared on news shows in what seemed like an effort to clarify the situation. He said he had spoken to McMillon, who told him Walmart would absorb some of the cost increases resulting from tariffs.

The secretary is correct about that. I read the earnings call transcript, and McMillon went to great lengths to explain their pricing strategy going forward. “In some cases, we’ll absorb costs within a category or department and not simply pass on a tariff cost attributable to each item individually,” he said.

He talked about suppliers shifting away from tariff-impacted materials, moving production of general merchandise when possible, and trying to hold food prices steady despite the tariffs.

In other words, Walmart is working hard to deliver on both its shareholders’ desire for increased profits and its customers’ desire for low-priced goods.

But McMillon was unequivocal that some prices would increase. 

“All of the tariffs create cost pressure for us, but the larger tariffs on China have the biggest impact. The cost pressure from all the tariff-related markets started in late April, and it accelerated in May,” he said. And, despite the complex efforts the company is undertaking globally to adjust to the new environment, “Even at the reduced levels, the higher tariffs will result in higher prices,” he said.

To me, there are a couple of dynamics at play here. 

The first is the media’s tendency to latch onto and amplify anything that can be construed as negative for President Trump. The earnings transcript reads like a masterclass in modern supply chain management and cost control in a highly unpredictable global business environment. 

Yes, McMillon said some prices would increase, but it was in the context of the steps the company is taking to mitigate the tariff impacts as best it can with so much of their product coming from China.

But, we got headlines like Reuters’ stating, “Walmart Shoppers to Face Price Hikes as Trump Tariffs Hit,” which cable news channels ran across their screens and that social media feeds amplified.

That’s nothing new. It’s how the media and social media work these days. 

The stranger dynamic is President Trump yet again telling one of the world’s largest companies how to run its business, and doing so in a somewhat threatening, heavy-handed way. 

The conservative Wall Street Journal, no fan of President Trump’s tariffs to begin with but generally supportive of many of his policies, called out the president’s Walmart post by comparing it to a similar one he made last year calling Kamala Harris’ suggestion of price controls on groceries “communist,” “fascist,” “socialist” and “Marxist.”

In its editorial, the paper said: “Mr. Trump’s flip-flop on price controls is a rebuttal of his own previous tariff claims. For months, he’s said that foreign producers pay the full cost of tariffs. But now he’s admitting that Walmart, an American retailer, will have to eat some of the costs or pass them on to Americans.”

As with his Apple threat, the president’s post displayed a misunderstanding about the complexities of running a company as vast as Walmart.

Walmart’s revenue last year was more than $600 billion. It operates more than 10,000 stores in more than 20 countries, has a market capitalization of nearly $800 billion, and employs more than two million people.

Its merchants have worked for decades with tens of thousands of suppliers worldwide to build trust and mutually beneficial relationships that translate to lower prices for consumers. A supply chain that interwoven can’t simply snap its fingers and “eat” the cost of tariffs without disruption to core metrics like product availability and Walmart’s own profitability.

A case in point: Home Depot. The company held its own earnings call a week after Walmart’s and said it had no plans for broad-based price increases resulting from the tariffs. In comparison to Walmart, Home Depot has higher margins, gets less of its product from China, and doesn’t sell the low-cost grocery items that make up so much of Walmart’s sales. Having said that, Home Depot did say it may likely stop selling some products due to higher costs from tariffs, so there will be an impact.

The fact is, tariffs will raise prices on and affect the supply of many goods sold in the U.S. in the weeks and months ahead without a major course correction, which doesn’t seem likely. And those impacts will vary by industry and company. If you need proof, just turn on your TV and watch all the ads by local car dealers touting “pre-tariff pricing” deals.

President Trump and members of his cabinet have acknowledged these impacts, describing the “short-term pain” that the tariffs will bring to consumers and businesses as part of their effort to level the playing field with our trading partners around the world. I appreciate that candor and honesty, and I believe the American people do, too.

Large multinational companies like Walmart and Apple are doing the best they can to adjust their businesses to the current tariff environment, as are the tens of millions of small businesses across the country. Perhaps a better approach would be to support them in those efforts, not threaten them.