The Walmart question: Will buying American-made matter if imports increase, too?

Posted by scapozzola on 03/17/2014

Walmart has gotten a lot of credit lately for talking up its push to buy American-made. In January 2013, the company announced that it would buy an additional $50 billion worth of made-in-USA items over the next 10 years.

More recently, the retailer has upped its rhetorical ante. At a company meeting in Orlando, Walmart CEO Bill Simon emphasized the company's commitment to made in America, stating that Walmart now expects its $50 billion commitment will ultimately mean $250 billion on U.S.-made products over the next decade.

The company's rhetoric may be laudable, but there are two concerns:

  1. The initial pledge of $5 billion per year for increased purchases of American-made goods is statistically insignificant when considered against the company's overall budget. In fact, Walmart has spent an average of $5.359 billion annually over the last two years on only store construction and repairs. Or, put another way: Walmart's budget is so vast that it spent roughly $360 million more last year on new Walmart locations than it has committed to its annual Buy American pledge.
  2. The overall problem with Walmart is that, on net, its business model has helped to increase America's trade deficit with China, which costs the U.S. in terms of good-paying manufacturing jobs.

In fact, Walmart's supply chain includes some 30,000 Chinese factories, which produce an estimated 70 percent of the goods it sells, and sourcing from China was already totaling $27 billion by 2006. 

So while it may be nice to promise an uptick in sourcing from domestic manufacturers, but the net increase in Walmart's sales means a correspondingly greater jump in imports from China.

This is the problem that has plagued U.S. manufacturing in recent years, when the Obama administration promised to double exports in five years. Essentially, it doesn't matter how much the U.S. is exporting if those gains are wiped out by an even greater jump in imports.

What would really help is if the kinds of domestic manufacturers that Walmart is looking to source from (like flat-screen TV producer Element Electronics, towel-maker 1888 Mills, and comforter manufacturer American Home Manufacturing) also see an increase in their sales abroad.

Otherwise, Walmart's commitment to U.S. manufacturing will be overshadowed by a continuing (and greater) flood of imports from China.

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