By Bob Brewer, Braumiller Law Group
It doesn’t seem that long ago, but it was, (October of 2018) that I wrote an article called “What’s Going on at Wally World”, based on the Section 301 tariffs being imposed on Chinese imports, and how it was affecting Walmart, who imports about 80% of their products from China. If you are inclined to review it, here is the link: Tariffs and Walmart…. What’s Going on in Wally World? – Braumiller Law Group
Fast forward two years, and add in a global pandemic, and it begs the question of just how the largest retailer in the United States is doing. The answer, very well thank you. In this still largely uncontained global pandemic light speed adaptation has been brought to the absolute forefront, if not simply for the fact of the business surviving, but thriving, and in Walmart’s case, they are the latter of the two scenarios. Pre-pandemic they had already been acting upon building their online presence and competing with Amazon on U.S. delivery times, but they seemed to be playing “catch-up” in many respects. That is no longer the case. Given the significant resources of both companies, it’s interesting to see the ongoing competition for global ecommerce market share. I could insert Alibaba here as well, but for this article, let’s focus on Walmart (Wally World, as I fondly reference it)
I used to think of Walmart as the old school brick and mortar store, but take a look now, and Walmart stores online sales are up 75% during the pandemic, with the industry average trending at a mere 27%. I thought they would be struggling given what the pandemic exposed in the various global supply chains (they use over 100,000 different global suppliers) and in Walmart’s case, the utter dependance on China for the majority of product. As previously mentioned, 80% of the 75 million products imported by Walmart are from China, so one would think that they would have suffered at least a little with the rest of U.S. importers with the same sourcing. Speaking of diminished supply chains, I think toilet paper was the major national scale product shortage, and for the life of me, I still can’t figure out why in a pandemic that is as good as gold. To Walmart’s credit, it’s something that isn’t sourced in China. While other retailer’s shelves went bare, Walmart flexed their Great Value, Made in the USA partnership muscle on this one, and the store shelves were restocked within a week. I know this, because they delivered mine, when nobody else could, including Amazon, and with the number of orders I have placed on Amazon in the past year, Jeff Bezos should have delivered my Charmin personally, next day, in a customized Amazon Lamborghini, because he is now on a fast track to becoming the world’s first trillionaire, and I am definitely contributing to further speed up that process.
It’s a given that the pandemic exposed the weaker global supply chains, and it brings up a veritable plethora of topics that are relevant, such as the need for reshoring, especially with medicines, and China Plus One also comes to mind. (I wrote an article on that as well: China Plus One and the IMMEX – Braumiller Consulting Group) Many companies were already structured to thrive in the pandemic with e-commerce solutions. Amazon of course was a natural to reap even greater rewards of a now primarily shuttered e-commerce dependent population, but Walmart has been laying the groundwork for a while (i.e. Flipkart purchase in 2018) and stepped up quick with increasing investments in eCommerce, technology, supply chain, and same day pickup and delivery. Honestly, my personal experience during this pandemic has proven Walmart to be the better delivery service on food items, and it didn’t start out that way 8 months ago. Quite frankly, it started out as an online cluster, and a guessing game if/when the product ordered online would actually be at my doorstep. Not anymore. They are my go-to for food items. They also have delivery of food items in China down to 2-hours.
Now, with mention of China (again) and the supply chain disruptions and shortages, it would be relevant to lightly touch on the topic of reshoring, and necessity being the mother of change in a pandemic world. First, an observation: it’s interesting when you look at the 443 Walmart stores in China, with net fiscal year sales hovering at around 11 billion, (more stores to come in 2021), and how 95% of their product is locally procured. Obviously, it begs the question of why so many of these similar products have to be imported to the U.S Walmart stores. If I may be permitted a moment more of digression, it truly makes one sit back and shake your head in somewhat disbelief regarding the biggest elephant in the room for U.S. manufacturing during this pandemic. We were, and still are, dependent on Chinese manufacturers for the vast majority of PPE that we need to this day. In a nutshell, one could dismiss it by saying, well decades ago (1970’s) poor management and worker abuse was the catalyst for unions, and unions created a better hourly labor wage with benefits, profit margins were then squeezed, prices went up, demand went down, and the manufacturing went off-shore for the sake of stockholder shares. Suffice it to say, this has been changing slowly, but not to the degree that there has been a mass exodus back to U.S. soil for manufacturing. To other Asian countries from China, yes. I wrote an article on that too: Good-Bye China, Hello Vietnam – Braumiller Law Group There are many obstacles to a smooth transition in relocating manufacturing. In the future, in the U.S., technology and automation will drive this initiative.
This leads us to the new questions of just how the Biden administration will be handling trade with China. President-Elect Biden has made it abundantly clear that he has no intention of immediately reversing the tariffs on imports from China. He has also made it known that his position has been, and always will be, that China needs to play by the international rules regarding trade. I do not foresee any major change in the landscape of various economic partnerships, such as China permitting the U.S. to join RCEP, the Regional Comprehensive Economic Partnership. The current 15 members of RCEP are: Australia, Brunei, Cambodia, China, Indonesia, Japan, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, South Korea, Thailand, and Vietnam. India decided to not participate. This is now the largest FTA (Foreign Trade Association) in the world. (See Senior Associate Attorney Vicky Wu, and Jim Holbein, Of Counsel’s newsletter article on this topic, in this newsletter (RCEP: Asia-Pacific Countries Sign the World’s Largest Trade Agreement)
China took the lead on this when the Trump Administration pulled out of the TPP, the Trans-Pacific Partnership. I do however see the U.S. implementing the Biden plan of utilizing its allies to attempt to keep China in check globally in trade, which of course is inclusive of protecting intellectual property rights, along with abolishing a 51% ownership mandate on foreign companies operating within China.
So, Section 301 remains in place while the Biden administration deals with the pandemic for the next year or so, and the subsequent rebuilding of the U.S. economy. I did previously question the 300 lobbyists in Washington D.C. who work on behalf of Walmart, and how the Trump administration (USTR-United States Trade Representative) pretty much ignored their requests to find another way of dealing with China on trade. I wondered how many were still contractually employed by Walmart after the tariffs were put into place. It was a pretty bold move given the fact that back in 2019 more than 600 companies large and small, including broad shouldered nationwide retailers like Walmart, Costco, Target, and Macy’s, signed a letter addressed to the Trump Administration stating just how detrimental the tariffs were to American consumers. It fell on deaf ears and blind eyes.
It will therefore be interesting to see in the upcoming year if Walmart’s top brass can convince the Biden Administration to ease back, and eventually phase out the majority of the tariffs. For those in the know, the USTR was recently sued by over 5,000 importers via the filing of lawsuits with the CIT (Court of International Trade) for a refund on the Section 301 tariffs paid. The court is currently mulling over just how to handle the flood of lawsuits, but if it does eventually develop into a favorable outcome on behalf of the plaintiffs, Walmart stands to gain the most. I wrote a fairly recent article on this as well: The Ongoing Trade War: Section 301 Tariffs – Have You Filed Suit? | MAPI
Predictions: In 2021 an end of the pandemic by… let’ say the end of July. A major revamping of global supply chains and sourcing will be brought front and center on many of the products we were caught without, because we had to source from Asia. Manufacturing in the U.S. will make a come-back, (pharmaceuticals via government subsidies) and the USTR under the Biden Administration will find a way to work with Walmart, and other U.S. retail titans in the restructuring of trade with China. There is far too much at stake as we rebuild our economies. Biden and Xi Jinping are very familiar with one another having met several times over the years. There is therefore a little bit of hope that this will lead to more open communication. We have a long way to go from the current situation.
At the time of this writing, President-elect Joe Biden will nominate House Ways and Means Committee chief trade counsel Katherine Tai to serve as his U.S. trade representative. As the Ways and Means Committee’s top lawyer, Tai was integral to securing key changes to the Trump administration’s renegotiation of the North American Free Trade Agreement, (USMCA) and has been heavily involved with the trade policies regarding China. (She’s fluent in Mandarin too)
In the end, right now…December of 2020, I’m dreaming of a COVID-less Christmas, just like the ones I’ve always known. Where the tree tops glistened, and people listened, to facts on diseases the scientists have shown…..:-)