Walmart: US largest retailer set to increase prices

0:05Hello and welcome to Business Matters here on the BBC World Service. There's plenty coming up on the programme. We're going to be looking at Donald Trump's calls for Apple not to build any more factories in India, move away from China, bring them all back to the US. Is that actually possible? We'll be looking at the latest economic data coming out of Japan. That is not very good indeed. With us to guide us through the programme, we have Alison Von Digglen, host of Fresh Dialogues, based in Silicon Valley. Alison, Silicon Valley, of course, famed for innovation. We're seeing a lot of innovation coming out of China.

0:40So the news that the big car company BYD setting up in Hungary, first European venture for them, that's quite big news and shows how quickly the Chinese have developed in that market. Indeed, yeah. BYD has been rapidly closing in on Tesla. And yeah, it's the number one now. But here in Silicon Valley, there's a lot of uncertainty in the business world. the on-again, off-again tariffs, policies that are stimulating inflation, fear and uncertainty. Silicon Valley tech workers are using a fearful word that they weren't using at all last year, recession. Tariffs. They are going to be mentioned a few times in this programme, though we're talking about them a little bit less than we were maybe a few weeks ago.

1:27Thanks for that, Alison. Shobh Kagda is with us, Indonesian journalist and businessman. If I came to the streets of Jakarta, what sort of cars would I see? Would I see many BYD cars on there, many electric vehicles? Which part of the world are most cars in Indonesian roads from? Well, hello, Rahul, and thank you for having me on the show. On Jakarta streets, you will see Chinese, Japanese, and a smattering of European cars. And the Chinese cars are really beginning to dominate. BYD, of course, as Alison mentioned, is the front runner. But there are many other Chinese brands. Wuling, for example, is also doing very well in Indonesia.

2:11They are, in fact, building a lot of factories here. Of course, the leader of the pack, so to speak, is Toyota. And Toyota has been in Indonesia since the 70s. They still dominate. And they're actually manufactured locally. There's a car called Innova, which is a joint venture between Toyota and Indonesia's own conglomerate called Astra. But yes, the Chinese are making huge inroads. And I will tell you, you will see very, very, very few Teslas or any American car on Indonesia's roads. Well, that is common in many parts of it. You know, the Innova, I know a lot about the Innova because when I lived in India, there were many Innova's on the streets.

2:57One of my family had an Innova, which I used to like traveling around. We're talking about BYD to begin the program because it is planning to establish a European center in Hungary. BYD, one of the world's emerging companies. Let's talk about the world's largest retailer, the US's largest employer. That is Walmart. Always a good bellwether for what's happening in the world's largest economy. Well, they've said they're about to raise prices. John David Rainey is Chief Financial Officer at Walmart, and he's been speaking to the U.S. network CNBC. We're wired to keep prices low for customers. But the level of tariffs that have been proposed is pretty challenging for all retailers, for suppliers.

3:38And certainly our concern is that consumers are going to fill some of that. Keep in mind, just a week ago, we were at 145 % tariffs. Now, we're very appreciative of the progress that the administration has made to get them down to this level. but I would say that it's still too high for consumers. We'd like to see them come down more. Here with more is our North of America business correspondent, Michelle Fleury. Walmart, America's largest private employer, is preparing shoppers for potential price hikes, possibly within weeks. CEO Doug McMillan told investors that despite the temporary US-China agreement to lower import duties, the company won't be able to absorb all of the cost pressures and will have to pass some along to consumers.

4:21In the case of bananas, the price has already jumped up. Tariffs on countries like Costa Rica, Peru and Colombia are pushing up the costs of everyday items like bananas, avocados, coffee and roses. Walmart says it's doing everything it can to keep prices low. But despite its scale and the fact that two thirds of its products come from the United States, even Walmart is feeling the pressure. With its global supply chain and negotiating power, the retail giant is in a better position than many to handle these challenges. But if it's struggling with cost pressures, well, other retailers are likely to follow suit.

4:57And Alison, that is the big question, isn't it? Who is going to follow suit? Now, I mean, that's an incredible figure. 90 % of Americans buy something from Walmart. So if they, with their huge supply chain, you know, they can hold big inventories as well, can't they, in those warehouses. If they're struggling with tariffs, then the smaller firms are really going to struggle. Yes, a good anecdote to share with you. I was having dinner last couple of weeks ago with a guy who runs an HVAC company. And he said if his inputs are going up by about 8%, he's going to charge consumers 15, 16 % more. Because as he says, we need to build in a buffer.

5:40And so inflation is definitely something to watch. I'm hearing that anecdotally from more and more people because of the uncertainty, people are just adding more to what they're charging consumers. So the consumers are really going to suffer here. What is the situation when it comes to prices in Indonesia? We talk a lot about what's happening in the US. What's happening around you, Sherb, when it comes to prices? Well, prices have been going up over the past few years. The tariffs in terms of the direct impact on consumer prices in Indonesia hasn't been that significant. But inflation has been a factor.

6:23It's kind of trending down at the moment. But, you know, what's happening is that consumers looking at what is happening globally have been tightening their belts. And we have seen consumer spending declining. In fact, there was a report out just very recently that car sales, a great barometer of consumer confidence, has fallen significantly in April, down by about 30%. So that kind of sent alarm bells ringing within the government in terms of just if the economy can continue to grow at 5 % this year, which many economists are now saying that it might not be possible. No, that is a decent number.

7:12China would like their economy to grow at 5%. That may be a challenge for them. Let's bring a new reaction from both sides of the political divide to the announcement by Walmart. Here's Annalise Keller. she's a Republican strategist. You know, the Labor Department reported 2.3 % price increases just Tuesday of this week. So that is the lowest price increase since 2021. So I will say that some of these tariffs are not being felt by consumers yet. So I think this will be a really interesting test to see if those trends continue with these companies increasing in response to the tariffs, or if Donald Trump's actions with China de-escalating, if those trade movements will sort of continue to cool the economy.

7:54There we go. That's the Republican side. Let's hear from a Democrat. Haima Moore is a Democratic strategist. We're going to see more of this. And Walmart and Target and Home Depot were very clear to the president a few weeks ago and said, look, if we don't get some relief in these tariffs, we're going to raise our prices. This is going to be really tough for the president politically. I think Republicans in all these districts that are Walmart districts, we call them, and that are Trump districts, they're going to have a tough time saying, I know you're paying more for your sandals this summer and paying more for your school close in August, but please elect me.

8:22And that's not going to fly with the American people. So I think people are going to start feeling it sooner than later. That was interesting, wasn't it, Alison? Because at the end of the day, a lot of this will be about voting. And, you know, we get closer and closer, don't we? As we head towards midterms, what, in a couple of years' time, these are all going to be the factors that will decide where people cast their votes. Yes, a year and a half, actually, before the midterm. So it's fast approaching. And absolutely, I think when people go to the store to buy a bike for their kid or whatever it is for Christmas, I think when it hits people's pocketbooks, I think they'll see, oh, all these promises that Donald Trump made about making America great and this economy the best ever.

9:07They're going to see, oh, there's a divergence from what he promised and what we are feeling. We keep trying to bring you people who can give us an insight into Donald Trump's thinking because he's having such an impact in policies, not just on the US, but on the global economy. And so here is somebody else who could possibly do that. Paul Downs led Project 2025, which some say helped create the blueprint for his second term. You know, Donald Trump is on his second term, so he really had in mind a lot from the first term he wanted to go with. But what Project 2025 really did was, I think, jettison all these ideas into the discourse, the public discourse, and get the real country behind it.

9:49And that's – what we did for the first time was unite the conservative sphere. Over 110 organizations came together, kind of cut – put to the side their differences, but really focused on rounding up the ideas and personnel recommendations so the president can move out day one. So I do think a lot of it did get reflected, yes. Yeah. Okay, let's talk about the one that we've been talking about the most, and most people have been tariffs. The policies that he's put in place, they didn't really work, did they? So he's having to backtrack now. Is that a fair assessment? I don't think so at all. I think they've driven, they've brought a lot of countries to the bargaining table.

10:27I think they had 70 or maybe more countries reach out to the Treasury within days of that. But what he is doing is really a resetting. You know, we are no longer in post-World War II economy. We have to bring back certain core industries to the United States. And we also have to reset things on a fair term, you know, given the rise of China particularly, but also other countries. And what he's done now is beginning to strike these trade deals. You know, interestingly, with Project 2025, we noticed that there was some ambivalence within the conservative sphere on these topics. So we didn't advocate for one position or the other.

11:10But to be clear, the president is very America first. And I think it's important that folks around the world realize this is incumbent for the United States to get its economy back on its legs for everyone else. But get its economy back on track. You have the best economy in the world. that system has worked incredibly well for you. Why change it now? Well, we saw in COVID a real kind of collapse. We saw the strategic danger that we faced in these really just-in-time supply lines. And more to that, that, you know, important things like pharmaceuticals weren't even being manufactured in the United States.

11:49So, you know, with kind of that recollection, you have to take pause and bring things back. The steel, a lot of these core industries that we have been able to make ourselves into the arsenal of democracy just aren't here. When it takes seven years to build a new Stinger missile, we have a problem. And the free world by extension does as well. We've seen Donald Trump tackle tariffs. It's probably been one of the central policies, economic policies looked at so far. While there's trade negotiations are taking place, he'll turn his attention elsewhere. What would you like to see him look at next in the economy?

12:25I mean, what do you think he'll look at closely next? Is it going to be tax? Is it going to be the deficit? Where's he going to go next? Well, you know, I think this is what democracy looks like, if you will. This is what the people in America voted for. And it may seem a little strange to the world, but this is really peace and prosperity. We haven't seen this. And I think the economy that he's helping build for the free world is, one, going to be rooted in a peace, a world peace. You saw him just settle, you know, bring India and Pakistan to the bargaining table. Well, that's a temporary... He's rushing off.

13:01Yeah, that's a ceasefire. Ukraine-Russia talk's not going as well, maybe, as people hoped. Well, they're going to start... They're actually happening, is the point. And, you know, and he's moving into spheres in the Gulf and really turning conventional wisdom on his head. So this man is a peacemaker. But when it comes to economic building, you know, I think here at home, There is got to be a little reshuffling of the deck. He is obviously going to be focusing heavily on the beautiful bill, but that may need to be disaggregated into several other bills. The point is that we have to, you know, critical to get the Trump tax cuts made permanent so we don't have the largest tax rise, but also, you know, take time to get those cuts permanent to really start making a cut.

13:47You'd like to see bigger cuts. Sorry to interrupt you. bigger cuts in the federal government to help close that huge deficit that the U.S. has? We're on an unsustainable track. I mean, we have$37 billion, a trillion rather, in national debt and mounting a$2 trillion structural deficit. And, you know, at some point, we're going to be crowded out from even being able to do private borrowing. This is, everybody pays this bill, whether they know it or not, when they get home and open up their credit card statement or their mortgage and everything else down the line, the inflation. So we have to wrestle the spending.

14:25It's not so much a revenue problem, as Secretary Besant says, it's that we have to bring this under control. And that's an American problem. We can't lay that out on the world. That's kind of a structural breakdown in Congress. We have seen politicians not have the will to actually make the tough decisions. But that's Donald Trump in the second term, untethered by the need to kind of curry favor for re-election. He's spending that political capital doing the long-term investment that I think is going to pay off. Paul Dan speaking there, show reciprocal tariffs, 32 % on Indonesia. They obviously are now suspended until July.

15:07Are there a lot of negotiations taking place between Indonesia and the U.S. trying to strike that trade deal? Yes. Well, the president of Indonesia, Prabowo, has actually formed a task force and a team of very senior politicians and ministers to negotiate with the United States. One of the key things that they have recently announced is that they will buy more oil from the U.S. rather than from Singapore. And remember, this is refined oil coming into Indonesia. So they are starting to look at it. Although Indonesia has a very, very small trade surplus with the United States, it doesn't really buy much.

15:52But having said that, and I think this is a point that many other people have made, the U.S. sells a very significant amount of services. I mean, Google, Facebook, all the major U.S. companies that offer services are all in Indonesia. But, of course, Indonesia doesn't buy much U.S. goods, like I said. In the past, for example, if you walked into a middle-class Indonesian home, you would see refrigerators made in the US, washing machines made in the US. Well, that's gone, right? It's all China or Japan or Korea at the moment. That is interesting to hear. Alison, one of the points Paul Dans was talking about there is something a lot of economists agree with.

16:42Now, how you do it is a bigger question, but there has to be a bigger focus on cutting that US deficit, doesn't there? Yeah, well, it just boggles the mind that Paul can talk about the danger of the US debt and spending. And then they're also proposing more tax cuts for the rich. It just does not make sense. And I feel Donald Trump's policies are jeopardizing America's economic supremacy. And as you pointed out in your interview, you know, it's like, you know, we are number one right now. And what he's been doing, his so-called Liberation Day, I think that wiped up one trillion dollar in market cap for the top seven tech companies.

17:27So I think, you know, he claims that he's a president for peace and prosperity, but I don't see that happening in either Ukraine or the Middle East. and his policies so far have damaged US reputation and worldwide relationships. Let us see how that develops. Of course, you know, those prices did go down and those US stocks have come back a little bit. You're in Indonesia. I was fascinated to see this story about, you know, the new man in charge of Indonesia giving himself marks out of 10 for how he's done so far. What marks did he give himself, Sherry? Yeah, it's quite interesting. He's been touting his achievements in the first 100 days.

18:13But public sentiment, on the other hand, hasn't been very good about it. Recently, one of his signature promises during his campaign was a free lunch program for school-going children, which he has delivered, but has run into all sorts of problems. Over the weekend, there was a report out of a city called Bandung, in West Java, where 150 children got stricken with food poisoning because they ate that food. So the logistics, you know, the optics of what he's doing is mixed, I would say, you know. The economy isn't doing so well in the first 100 days. As I mentioned, consumer spending is down now.

19:00Is that because of external factors or his policies? because the president has introduced this efficiency policy where he's cut public spending, especially by civil servants. So civil servants now, for example, when they host meetings, they have to do it in their own offices. In the past, they used to use hotels for bigger meetings. And that helped to kind of oil the wheels of the economy, right, because you're spending money. But he's cutting back on all of that because there is a feeling that here too, the government needs to bring its spending under control. Well, that is something a lot of countries are looking to deal with at the moment.

19:45Yeah, he gave himself six out of ten, which I don't think Donald Trump, would he give himself six out of ten? No, he would give himself the 11 out of ten. Give himself, yes. Maybe, maybe, you know, we don't know. We don't know. Maybe it's going to become a little bit more modest moving forward. Meta, can we talk about that, Alison? Because they've delayed their new flagship AI model. Were you surprised at that? I think there's just so much going on in the AI world. And also Apple has reassessed what it's using. You know, it's undermined Google's supremacy in the Google search. So I think it's AI right now.

20:26There's so many millions or billions going into it that I think a lot of there's a lot of uncertainty around it. And it's not that surprising that they're taking a wait and see attitude. Has there been a change in Silicon Valley? You know, like a couple of years ago, it seemed like everybody wanted to get a product as quickly as possible. Keep updating it. People saying, look, there's no point just doing something for the sake of it. we need to see significant improvements. So let's wait for that, even though it can affect your share price. Yes, I think it's, you know, AI is just a given right now.

21:09Every single company, no matter what they're selling, what kind of widgets are using AI. But as you say, yes, it has to demonstrate that it's more efficient, it's getting the product out there faster, or it's developing the product faster. But everyone I know is using AI. And it's, like I say, it's a no-brainer. You know, it's kind of built into almost everything you touch in tech these days. Yes, it certainly has helped to drive some of the share prices of those big American tech companies. Sherba, are you seeing it in the economy around you? Briefly, if you don't mind, because we're heading up to the news, but are we seeing a lot of Indonesian companies using AI, trying to get into this sector, growing tech sector in Indonesia?

21:58Yes, absolutely. I think AI is the buzzword. Everybody's talking about it. The key really is how do companies leverage on AI in their daily operations, in their sales strategies, in their supply chain strategies. So I think at the moment, AI is really used more in terms of in the tech world. But you see that a lot of what we call the real sector companies also starting to look at AI and how do they adopt AI into their operations. And yes, it definitely is becoming a huge strategic imperative for many CEOs and business leaders. Yes, it certainly is, not just in Indonesia. across the world as well.

22:46We'll head to the news. Be back with you very shortly.

23:04You're listening to Business Matters here on the BBC World Service with me, Rahul. We've got Alison there in Silicon Valley in the US show up there in Indonesia. Let's stay on that Asian theme for a little bit, because Donald Trump wants Apple to build more of its phones in the United States and less in China and India. I had a little problem with Tim Cook yesterday. I said to him, Tim, you're my friend, I treated you very good. You're coming in with 500 billion dollars, but now I hear you're building all over India. I don't want you building in India. You can build in India if you want to take care of India, because India is the highest, one of the highest tariff nations in the world.

23:42It's very hard to sell into India. So Donald Trump, not very happy there, but how easy is it to move those supply chains to India, even to the US and take them out of China from where they've been for so long? That's a question I put to Eli Friedman, professor of global labour and work at Cornell University in New York State. He formerly sat on Apple's academic advisory board. There's a lot of factors. So the ecosystem of suppliers is absolutely very important. So if you're in China, people are focused on the final assembly of iPhones, which is, of course, very, very important. But when you have the final assembly in a place like Zhengzhou, it used to be a lot more in Shenzhen.

24:23Foxconn has a number of facilities. There's also a whole ecosystem of all the people producing all of the other parts. And there's a lot of efficiencies, but also gains that you can get in terms of the quality, where they can be going back and forth. the suppliers, you know, sometimes literally in a day they can hop in the car and just drive across town. The other thing is around the state capacity. The state really gets things done. So it can get vast swaths of land. The largest facility that Foxconn, Apple's most important supplier, had more than 300 ,000 workers in a single facility. The one in Zhengzhou, which is now the so-called iPhone city, has at its peak more than 200 ,000 workers.

24:59That requires the ability to clear big pieces of land, to do massive construction projects. Of course, even supplying energy in some parts of India can still be a bit of a challenge to link it up to the infrastructure, to get it quickly to ports, to get it onto airplanes, et cetera. And then the final piece, I'm a sociologist, and I think it's really interesting to think about how is it that you get 200 ,000 people to work in a single facility, to stay in those dormitories, to be willing to adapt to the kind kind of the ramp up in production that Apple has around Christmas and to work sometimes very, very long cycles.

25:35Many of those things are not really in place in India. They talk a lot about people wanting to go home at the end of the day to have dinner with their family, which is normal in many places, and that puts a real crimp in the kind of the extreme production cycles that Apple demands of its suppliers. I'm intrigued by that. Does it have to have factories of that scale, 200 ,000, to make this system work? Because obviously they're putting together a huge number of components from all over the world, aren't they? It's one of the unique things about the iPhones. It's an incredibly complex commodity, right, with hundreds of pieces, as you say, that are brought in from many places all over the world.

26:11The other thing about the iPhone is that there's not a lot of variation, right? There's just a couple of different models that they're producing, and they're producing this one commodity at just a massive scale. That's not true for really any other electronics in the world, particularly when it comes to the ramp-up in the lead up to the holiday season in the West, that just requires massive volumes of commodities that are moving through there in a very sort of tight timeframe. And it also requires them to be able to shed some of those workers when the ramp season ends, which is another complicated problem for their suppliers.

26:45I'm sure that some of our listeners will be pulling out their phones if they have an iPhone. There are, of course, other phones out there. And looking at it, I'm wondering why it is so complicated and why it is so difficult to make. Can automation improve that process as technology develops? Will it become simpler for Apple? Will it become cheaper and they'll be able to have factories in more places in the world? Automation has already changed some of the production, but I think not nearly as quickly as some people had thought. So you can go back to, I believe it was 2013. Terry Goh, who's the CEO and founder of Foxconn, said that he was going to invest a huge amount of money in robots and that he was going to unleash this army of a million robots that was really going to expunge a lot of that human labor from the production process.