America’s largest retailer, Walmart, may face increased costs for many of its products due to newly announced tariffs.
On April 2, the Trump administration introduced extensive tariffs with the goal of creating a level playing field for the United States in international trade. The new policy imposes a 10% tariff on all imports, with higher “reciprocal” tariff rates applicable to countries with which the U.S. has the largest trade deficits.
This announcement represents a significant disruption to the economic status quo in the U.S. and has already caused disturbances in the global stock markets. Given the country’s heavy reliance on imports, consumers might experience price hikes as these tariffs come into effect. Walmart, the largest retailer in the U.S., sources a significant portion of its products from international markets.
The retailer is expected to be directly impacted by the new tariff policies. More than two-thirds of Walmart’s U.S. product sales last year were from goods produced, grown, or assembled domestically, indicating that imports made up about a third of its U.S. sales. Reports from Reuters indicate that approximately 60% of Walmart’s imported items originate from China, with India and Vietnam also being key suppliers, all of which are subject to reciprocal tariff rates.
The countries manufacturing many products found at Walmart, such as clothing, shoes, and electronics, will now face tariff rates of 34% for China, 46% for Vietnam, and 26% for India. As a result, Walmart may need to increase its prices.
Despite the challenges posed by the tariffs, Walmart might retain its competitive advantages. Being the largest retailer, Walmart has substantial leverage in sourcing goods, positioning it more favorably than many of its competitors in managing increased costs. With most retailers heavily relying on imported goods, any cost increases could still leave Walmart as a cost leader, maintaining the lowest prices albeit with possible price increments for consumers.
Grocery sales form the core of Walmart’s business, constituting about 60% of its U.S. store sales in 2024, alongside significant sales from health and wellness products. Even with potential price increases, consumer spending on necessities like food, medicine, and toiletries is less likely to be reduced compared to discretionary items, where competitors like Target have greater emphasis.
For investors, these developments with new tariffs constitute an evolving situation, and the responses from various countries are yet to be fully understood. While Walmart’s competitive position appears stable for the long term, consumer spending could be affected if higher costs significantly compress purchasing power.
Analysts predict Walmart’s earnings will grow by almost 8% annually in the long term, but these estimates have seen a downward trend amid worsening economic conditions and could decline further pending more clarity on the tariff impact.
At present, Walmart’s stock has a price-to-earnings ratio of 35, approximately 25% higher than its average over the last decade. Although blue-chip stocks like Walmart are often seen as safe investments during market volatility, the current valuation may be considered too high, posing risks for new buyers. Consequently, a substantial price decrease might be necessary before acquiring shares in Walmart could be justified.
Justin Pope, the author, has no holdings in the mentioned stocks, while The Motley Fool holds positions in and recommends both Target and Walmart, with a transparency policy in place.