Washing machine war will test Donald Trump's mettle on trade

Samsung and LG both said restrictions on their products would hurt customers by raising prices, decreasing choices and dampening innovation.
Samsung and LG both said restrictions on their products would hurt customers by raising prices, decreasing choices and dampening innovation.PHOTO: REUTERS

WASHINGTON (NYTIMES) - A brewing fight over imported washing machines will pose a key test for President Donald Trump's willingness to impose the type of strict trade barriers he often touts as necessary to protect US businesses.

The US International Trade Commission cleared the way on Thursday (Oct 5) for possible trade actions with its ruling that surging imports of washers are harming US manufacturers.

The ruling stemmed from a rare and potentially powerful type of trade case filed in May by Whirlpool.

Whirlpool's petition - just the latest in a series of claims of unfair trade practices against two South Korean manufacturers, Samsung Electronic and LG Electronics - says the companies hopscotched their production facilities around the world to evade duties the United States had imposed on specific countries.

Rather than bring a typical trade complaint - like those Whirlpool successfully brought twice before, claiming that Samsung and LG were "dumping" their products at unlawfully low prices - Whirlpool chose to file a rarely used type of case that could cover all foreign countries and would leave the ultimate decision to Mr Trump.

In this kind of "safeguard" case, the president has broad authority to impose barriers, including a sweeping tariff, if the US finds that manufacturers were harmed by rising imports.

The president has frequently discussed using tariffs to protect US manufacturers from cost-cutting rivals. But apart from the routine anti-dumping and subsidy cases that crop up in every administration, Mr Trump himself has yet to enact any broad measure.

"This vote sets the stage for the administration to put in place an effective remedy to create a level playing field for American workers and manufacturers," Mr Jeff Fettig, the chairman of Whirlpool, said in a statement. "This type of corrective action will create US manufacturing jobs."

Samsung and LG both said restrictions on their products would hurt customers by raising prices, decreasing choices and dampening innovation.

The issue is a complicated one. Critics agree with the South Korean companies' position that this type of trade case will raise costs for US consumers. They also caution that unintended consequences could arise in a world of multinational supply chains, where the dividing line between US and foreign companies is not cut and dried.

And both Samsung and LG have announced plans to hire US workers. LG announced in February that it would build a US$250 million (S$342 million) washing machine factory that would employ 600 in Clarksville, Tennessee.

Samsung said in June that it had reached an agreement to open a US$380 million factory in South Carolina to produce home appliances.

Secretary of Commerce Wilbur Ross attended the signing of Samsung's agreement and called the investment "great news".

Whirlpool's safeguard case is the latest salvo in a series of escalating trade actions the US company has brought against its rivals.

In 2013, the US ruled that dumped and subsidised imports from South Korea and Mexico were hurting US competitors and imposed duties on those countries. In early 2017, the US finalised similar duties on washers from China, where Whirlpool says the South Korean companies relocated their manufacturing facilities.

Now, Whirlpool says the companies have moved production to Vietnam and Thailand to evade further duties. In a trade case filed May 31, Whirlpool said that its rivals were still selling imported washing machines at illegally low prices, and it appealed to the US government for more sweeping protections.

At a conference in March, Mr Peter Navarro, a White House adviser on trade, cited the practices of Whirlpool's competitors as evidence that America needed a different trade strategy.

Referring to Whirlpool, Mr Navarro said: "This heartland of America icon is grappling with a practice called country hopping, in which two of its South Korean competitors, LG and Samsung, simply move their production to another country each time Whirlpool wins an anti-dumping case against them."

At a hearing on Oct 19, US trade officials will begin considering what measures, if any, could help offset Whirlpool's losses. They will send their recommendations to the president by Dec 4.

The case could ultimately be challenged at the World Trade Organisation.

In 2003, the WTO ruled against steel tariffs that President George W. Bush had imposed following a similar trade case, and the US chose to withdraw those measures rather than face retaliation from its European trading partners. But given the current backlog of trade disputes at the WTO, such a ruling could take years.

Over the past several decades, Whirlpool swallowed up market share and became the dominant US manufacturer of washing machines by acquiring smaller rivals, including Maytag in 2006.

But in the past decade, it has faced tough competition, mainly from Korean conglomerates. Whirlpool went from having a 22.6 per cent share in total dollar value of the US market for washing machines in mid-2008 to 17.4 per cent in mid-2017, according to data by TraQline, a retail and consumer market share survey run by the Stevenson Co.

In the same period, Samsung's market share soared from 1.7 per cent to 19.8 per cent, while LG's grew from 12.6 per cent to 16.2 per cent.

Supporters of Whirlpool's trade case say that South Korea, China and other countries unfairly subsidise and protect their markets, leaving US producers, which must pay wages US workers find acceptable, at a disadvantage.