Following is information and insight from IHS Markit, related to the Trump Administration’s safeguarding tariffs on the washing machines market in the United States.
- Effects on economics and global trade: US protectionism may not create actual trade wars, but it could lead to economic uncertainty and turbulence, which would have an adverse impact on the wider global economy.
- Effects on consumers: American consumers may lose out in the end, paying more for the same products, while at the same time having fewer available product choices.
- Effects on corporations: In the long run, such initiatives are expected to create more jobs in the US, but they may not necessarily favor only American companies. The situation for American companies, either domestically or in export markets, could be challenging.
- Effects on the global home appliances market: In the short term, these tariffs may trigger a lift in immediate demand, as some consumers would try to prepone their near replacement of a washer, in order to avoid expected cost increases from tariffs; in the long term, the tariffs may impact demand for washers as well as wider home and consumer appliances.
Economics and global trade
Imposing higher tariffs on washing machines may not necessarily achieve the Trump Administration’s desired objectives. However, it could be a precursor for other protectionist trade policies, expected in 2018 and beyond.
Such safeguarding actions could dent the expected positive growth of the US home appliance market and adversely impact the economy and domestic employment in the long term. They could also lead to the adoption of similar trade practices by other countries, which could trigger turbulence in the way free global trade is conducted. For example, foreign governments could impose similar taxes on imports from other countries, including the US.
A resulting increase in import duties by other countries may make American goods less competitive outside the US, causing negative effects on the wider global economy and potentially leading to negative impact on business, leading to lower employment. Difficult exports could make American companies more reliant on their own domestic market, which is expected to get even more competitive and vulnerable as foreign competitors start to build factories in United States. Another option for US companies could be to heavily invest in factories in foreign countries and sell locally, which overall defies the notion of free global trade.
The Trump Administration needs to strike the right balance. On one hand, it aims to support the American economy by asking foreign companies to invest in, and to set up, manufacturing facilities in the US, thereby creating business opportunities and jobs. On other hand, it seeks to restrict the amount those same companies sell in the US by imposing safeguard measures. As the distinction between “America First” and “US protectionism” is not clear, we could expect either a softening of these upcoming safeguarding tariffs, or expect major turbulence in the world economy, as uncertainty about how global trade is conducted prevails.
Prices of washers in the US are expected to only marginally increase in the next two years, but not in the long run. An incremental cost of $50 to $70, due to tariffs, may not be a major concern for consumers — or even for manufacturers. In fact, Samsung Electronics and LG Electronics may be able to absorb some or most of the incremental costs associated with these tariffs, so price increases would not have a significant effect on consumers, whose choices are driven more by appliance features, design, innovation and performance.
Expecting such moves, both Samsung Electronics and LG Electronics had already begun importing huge quantities of washing machines into the US in the past couple of years, which could help them meet demand for a couple of quarters. By the time the inventory stocks of such washers are exhausted, both companies would be ready to start producing them domestically in the US. Samsung has already started to produce washers in the US, and LG Electronics is speeding up construction with the aim to start producing washers by late 2018.
To continue gaining market share, many non-US appliance companies with deep pockets may still be able to absorb some, if not most, of the incremental costs.
Following is a list of companies most likely to be affected by recent tariffs on washers: Korean companies Samsung and LG Electronics; Chinese companies Haier and Midea; Swedish company Electrolux; and, to a smaller extent, German company Robert Bosch. Considering the fact that current regulations also include import duties on raw materials, tariffs would also affect American companies that import raw materials, like Whirlpool Corp. and GE Appliances.
Samsung and LG Electronics have both gained share in the US laundry market, not only because of their introduction of relatively cheaper products, but also because they are found to be result of great designs, features and innovations. Price increases of 15 percent to 20 percent might not necessarily impact their business to a concerning level, as consumers who want and like Samsung and LGE products should be able to pay marginally higher prices, especially as many of them would fall under premium segment of the market.
Home appliances market
By safeguarding tariffs on washers, the Trump Administration might not be able to achieve its desired results. It might even dent the positive outlook of the overall growth of the US home appliance market — and may even adversely affect the economy and employment rates.
Currently its impact is felt on the washing machine market, but it could soon roll out into refrigerators, ranges and ovens, and other home appliance categories. We can expect companies like Samsung Electronics and LG Electronics to become even more aggressive in these categories, considering innovations like Samsung’s FamilyHub, which is hot in demand, and LG Electronics’ InstaView Fridge. The Trump Administration could soon introduce similar safeguarding measures for imports of other raw materials, like steel and aluminum.
While the United States is still an important and high-value market for home appliance companies, many domestic companies are still dependent for growth and survival on exports to fast-growing emerging markets in Asia. These recent protectionist steps taken by the Trump Administration could shatter the faith of businesses outside the US and adversely affect the jobs dependent on them.