WASHINGTON (BLOOMBERG) - US 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 such as South Korea-based LG Electronics and China's Midea Group can get around the import duty, of as much as 50 per cent, by raising prices or re-routing production to countries exempt from the new taxes.
Several Asian appliance makers, such as Samsung Electronics and China's Qingdao Haier, have US factories that could help ease the conflict as companies ramp up production there.
"The negative effect on the industry outside the US is likely to be small, as companies have various strategies in place to deal with this scenario," said Yuanta Securities analyst Juliette Liu in Taipei. "They can pass on cost increases to consumers or ship the parts into the US or neighbouring countries for final assembly to avoid the tariffs."
While Mr Trump's first major trade move as president aims to protect the US$5.1 billion (S$6.7 billion) US 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 United States.
The decision is a "great loss" for US 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 did not respond to requests for a comment.
Mr Trump was responding to a recommendation by the US International Trade Commission in November (2017) to raise import duties after Whirlpool, which has the biggest share of washing machines in the US, accused Samsung and LG Electronics of selling the appliances in the U.S. below fair-market value.
The US 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 US-based plants. LG is building a washing-machine factory in Tennessee, its first US-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 labour costs in China rose.
They have also made big acquisitions of Western appliance brands like Fisher & Paykel and Clivet to boost sales of premium goods, which deliver higher margins than their own low-cost core brands.
Midea, the world's biggest appliance maker, has plants in India and Brazil - both countries exempt from the new washing machine taxes - while rival Qingdao Haier bought Louisville, Kentucky-based GE Appliances for US$5.6 billion in 2016.
GE Appliances' 900-acre facility in the US will help Qingdao Haier "realign its supply chain for the US market if needed", said Ms Mavis Hui, Hong Kong-based analyst at DBS Vickers. "If the tariffs are really hurting them, Haier can just produce washing machines in the US by leveraging on the facilities that GE Appliances has," she said.