Why Amazon And Walmart Are Bad For American Manufacturing

Walmart follows in Amazon’s footsteps and opens doors to direct China business to American consumer retail on its platform.

At this point, retail giants Amazon and Walmart are like King Kong versus Godzilla, stomping and breathing fire all over a bunch of hapless villagers who didn’t ask for the drama, but are surely to be collateral damage.

Walmart said on Thursday that it has removed rules requiring sellers on its marketplace website to be registered in the US, which copies what Amazon has already been doing. As a result, China’s manufacturers can now sell directly to US consumers via Walmart websites.

With Walmart now following in Amazon’s footsteps, it likely cuts into the price margins that traditional retailers like Macy’s or Dicks Sporting Goods can place on the same products they’re importing in bulk from China, and opens the floodgates for Chinese manufacturers who can now simply list their wares on the two biggest American e-commerce platforms no differently than they would on Alibaba back home. From home goods to exercise equipment, if it’s purchased from Amazon or Walmart, it is increasingly more likely to have been made in China and will be shipped to you directly from Chinese warehouses.

For Americans who just lost their jobs to offshoring and are stuck buying low-cost Asian made goods, all of this becomes a vicious cycle for them.

“The last place that GE made incandescent light bulbs was in Winchester, Virginia and it was a lovely town then but now looks like every other down and out town in America that’s lost its manufacturing jobs,” said Jim Stuber, an attorney and author of the new book “What if Things Were Made in America Again.”

“This people went from $30 an hour to $15 an hour and they have no choice but to buy this low-wage made stuff from places like Walmart,” he said. Stuber highlights a bill by Senator Tammy Baldwin (D-WI), proposed last May, called the Country of Origin Online Act that would require companies like Walmart and Amazon to include where the product is made and where the seller is located. Mexico does this, by the way. We do not. “I’d like to see Senator Baldwin reintroduce her bill,” he said. “That would be an important first step. Since Covid hit, so much shopping has gone online.”

During the pandemic, China’s exports rose as the US, Europe and elsewhere went into lockdown, proving itself once again to be the world’s go-to manufacturing center. A lot of this is coming at America’s expense. Exports are still on the march.

Walmart and Amazon are helping facilitate this, as are nearly every major multinational retail chain from Macy’s (clothes mostly all imported from Asian nations) to Lowe’s.

Amazon’s marketplace is open to virtually anyone who goes through an online registration process. Walmart’s version will be by invitation only so they can vet sellers.

For Chinese manufacturers, US retail catalogs and Amazon have become the best, cheapest way to reach American customers. Over 45 percent of all Amazon marketplace sales to US consumers come from China, according to researcher Marketplace Pulse, which monitors the site.

In January, China was 75 percent of all of the newly minted marketplace sellers on Amazon, according to Marketplace Pulse. Walmart will see similar numbers if not surpass it as Walmart stores are almost entirely comprised of Asian sourced goods.

Walmart used to be the sole customer for GE’s LED bulbs made in Ohio. But it switched to China and shut the Ohio line down this month despite lower corporate taxes that began in 2017 that, one would think, gave them more purchasing power.

The production from that plant will now go to a GE joint venture in China. First GE outsourced the LED components to China and Hungary, then it sold the plant to GE-Savant LLC in Ohio, which recently said could not meet Walmart’s low price point demands.

Greg Owens, CEO of Liberty Tabletop, a flatware manufacturer based in Sherrill, NY, pays to advertise his products on Amazon. But the only way you will find them is if you were to specifically search for “silverware made in the USA.”

If you just typed in silverware, Amazon would first give you a company that also paid to be No. 1, then would later give you its own brand called Amazon Basic, followed by a host of brands you have never heard of, almost all of them from China.

Amazon Basic, depending on the product, is undoubtedly not domestic by even a fraction.

As part of our de minimis customs tax exemption for imports, companies can easily set up shop in duty free zones in Mexico, importing container loads of goods and warehousing them there.

“Say 1,000 people order 1,000 pieces of flatware and that all gets shipped individually, loaded onto a truck that comes to the US border from Mexico. They are able to import the goods through an express entry manifest, bringing them across the border easily,” Owens said. “Customs has no information on the Harmonized Tariff codes for those items and will have no information that they were first sold via Amazon, only that they are going to your home address. Those products then get sent to a UPS facility or wherever and off it goes, duty free,” he said.

Walmart is looking to expand this kind of marketplace, where suppliers can offer their products directly to American consumers on the company’s website.

For retailers like Walmart, marketplaces are attractive because there is no inventory cost. Last year, Walmart began offering fulfillment services for its marketplace sellers, a move that Amazon made 15 years ago. Sellers can also purchase advertising on Walmart’s websites, which supports the company’s new Walmart Connect media platform, Bloomberg reported.

Relatedly, last September, the Trump administration’s Operation Mega Flex, run by Customs and Border Protection, reported that it seized 4,200 illicit goods and recorded 2,400 agriculture violations over a 15 month period.

The seizures included counterfeit goods, illegal narcotics, fake identity documents, prohibited plant and animal products, and other items sold via e-commerce sites nationwide.

While CPA has no insights into how clean Amazon’s list of China sellers really is, the monster-sized direct China business-to-consumer market they are creating is a headwind for American makers of similar items.

At the very least, country of origin and seller origin labels are needed, giving American consumers who wish to support domestic business a chance to do so when making purchases online.