How Asian Giants Can Counter Trump's Washing Machine Tariff
(Bloomberg) -- U.S. President Donald Trump’s tariffs on imported washing machines, aimed at stemming the flow of cheap appliances from South Korean and Chinese companies into the American market, may end up a wash.
Targeted companies like South Korea-based LG Electronics Inc. and China’s Midea Group Co. can get around the import duty, of as much as 50 percent, by raising prices or re-routing production to countries exempt from the new taxes. Several Asian appliance makers, such as Samsung Electronics Co. and China’s Qingdao Haier Co., have U.S. factories that could help ease the conflict as companies ramp up production there.
“The negative effect on the industry outside the U.S. is likely to be small, as companies have various strategies in place to deal with this scenario,” said Yuanta Securities Co. analyst Juliette Liu in Taipei. “They can pass on cost increases to consumers or ship the parts into the U.S. or neighboring countries for final assembly to avoid the tariffs.”
While Trump’s first major trade move as president aims to protect the $5.1 billion U.S. washing machine market from cheaper competition from abroad, American shoppers may be among the most affected. Workers could also be hurt if foreign appliance makers scale back production plans in the U.S.
The decision is a “great loss” for U.S. workers and consumers, Samsung said on its website. The tariffs on washing machines is a tax and will make everyone pay more, it said. LG said in a statement the result hinders the ramp-up of its new plant and threatens new U.S. jobs. Representatives for Qingdao Haier and Midea didn’t respond to requests for a comment.
The market reaction was less than dramatic. In Seoul, LG Electronics shares closed with a gain of 0.5 percent, erasing an earlier loss of as much as 5 percent. Samsung Electronics advanced 1.9 percent. In China, Qingdao Haier slipped 2.1 percent while Midea Group climbed 0.9 percent.
Trump was responding to a recommendation by the U.S. International Trade Commission in November to raise import duties after Whirlpool Corp., which has the biggest share of washing machines in the U.S., accused Samsung and LG Electronics of selling the appliances in the U.S. below fair-market value.
The U.S. has been chasing the appliance makers since at least 2011, accusing the companies of repeatedly shifting production to low-cost countries including Thailand and Vietnam as part of an aggressive pricing strategy. While the latest duties target moves by LG and Samsung, it also applies to companies in countries that are not preferred trading partners, including China.
LG and Samsung have options. They could sidestep import taxes by producing higher-margin premium washers in their new U.S.-based plants. LG is building a washing-machine factory in Tennessee, its first U.S.-based production facility, with completion possible in early 2019. Samsung’s home-appliances plant in South Carolina, which began production earlier this month, could produce 1 million washing machines in 2018.
Chinese makers, which dominate the production of washing machines worldwide both under their own brands and as parts suppliers to other brands, have similarly diversified their manufacturing bases in recent years as labor costs in China rose. They’ve also made big acquisitions of Western appliance brands like Fisher & Paykel and Clivet SpA to boost sales of premium goods, which deliver higher margins than their own low-cost core brands.
GE Appliances’ 900-acre facility in the U.S. will help Qingdao Haier “realign its supply chain for the U.S. market if needed,” said Mavis Hui, Hong Kong-based analyst at DBS Vickers. “If the tariffs are really hurting them, Haier can just produce washing machines in the U.S. by leveraging on the facilities that GE Appliances has.”
©2018 Bloomberg L.P.