Retailers shift supply chains to reduce risks from Trump's tariffs on China

Yahoo

2 days ago

A number of retailers are working to reduce their exposure to China as President Donald Trump's trade war with the second-largest economy rages on.
In recent earnings reports, executives have indicated that they are restructuring their supply chains to reduce reliance on China and mitigate the impact of tariffs. Trump sees tariffs as a way to boost domestic manufacturing, but avoiding China is challenging, and many retailers have already warned of potential price increases.
China has been a significant target of Trump's levies, with the U.S. slapping tariffs of 145% in April before temporarily reducing them to 30% for about 90 days as part of a temporary agreement with China.
However, Trump accused China of violating its temporary agreement, according to a Friday post on Truth Social.
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"The bad news is that China, perhaps not surprisingly to some, HAS TOTALLY VIOLATED ITS AGREEMENT WITH US. So much for being Mr. NICE GUY!" Trump wrote, without explaining how China violated the agreement.
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As tensions escalate, Macy's CEO Tony Spring told analysts on its earnings call Wednesday, the company is continuing to diversify the countries of origin for its private and national brands.
At the end of last fiscal year, Spring said about 20% of total Macy's, Inc. products originated in China. National brands, which represent the majority of its sales, sourced approximately 18% from China and its private brands, where it has more direct control of the supply chain, sourced roughly 27% from China. That's down from 32% last year and a rate of more than 50% pre-pandemic, according to Spring.
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Gap CEO Richard Dickson also told analysts on its earnings call last week that while China used to be one of the top sourcing countries for its products, it represented less than 10% of its sourcing last year. He expects that number to drop to less than 3% following the close of fiscal year 2025.
"Most other countries represent less than 10%. Vietnam and Indonesia represented 27% and 19% of our sourcing last year, respectively, and our goal is for no country to account for more than 25% by the end of 2026," Dickson said.
Dickson said the retailer is also planning to double its vendor sourcing of American-grown cotton in 2026.
"Today, we are much better equipped to handle complex headwinds because we have a stronger financial foundation, and we are operating with greater discipline, growing brand momentum, and improved platform capabilities," he added.
Target Chief Commercial Officer Rick Gomez told analysts on a recent earnings call that about 60% of its products were coming out of China in 2017. Today, it's around 30%, though Gomez said "we are well on our way to be less than 25% by the end of next year."
"Our teams have been working very hard to offset the vast majority of the tariffs. And we're doing that because – or are able to do that because – of Target's size and scale, our [mixed] category business, which gives us flexibility, the productive partnerships that we have built with our vendors and suppliers and then our best-in-class global sourcing team has put us in a good position to be able to navigate these tariffs." Gomez said.
He added that the company is "expanding into new countries, Asia as well as the Western Hemisphere, but I think it's important to note that we're also exploring opportunities here in the U.S."
Apple's Tim Cook told analysts during its May earnings call that the majority of iPhones sold in the U.S. during the June quarter will have been produced in India. Vietnam will be the country of origin for almost all iPad, Mac, Apple Watch and AirPods products sold in the U.S. for the quarter, he said.
Still, Cook said China would continue to be the country of origin for the vast majority of total product sales outside the U.S.
Walmart CEO Doug McMillion told analysts during its May earnings call that he believes the company is positioned well relative to competitors, given that it has been working for years "to try and make sure that we've got surety of supply, we're sourcing from the right places, create a more flexible supply chain, and we've made progress on that."
Nearly two-thirds of Walmart's U.S. spending goes toward products made, assembled or grown in the U.S., but the remaining third comes from around the world, with China and Mexico being the largest contributors.
The nation's largest private employer has repeatedly warned that price increases are likely, especially given the magnitude of the tariffs.
Earlier this year, the chief executives of Target and Best Buy also warned that tariffs against key trading partners will put pressure on profits and could drive up prices for consumers.
Meanwhile, Trump faces legal challenges over implementing tariffs. One court ruled the president overstepped his authority by implementing sweeping tariffs. A federal appeals court on Thursday allowed Trump's tariffs to remain in effect temporarily after an appeal from the administration.
In the Thursday decision, the U.S. Court of Appeals for the Federal Circuit granted an immediate administrative stay to the extent that permanent injunctions entered by the Court of International Trade on Wednesday are temporarily stayed until at least June 9, when the court will hear arguments.
After June 9, the court can issue an order of enforcement. If it does, the administration will likely seek relief from the Supreme Court.
FOX Business' Greg Wehner and Bill Mears contributed to this report. Original article source: Retailers shift supply chains to reduce risks from Trump's tariffs on China