Washer Safeguards Working Imperfectly for Domestic Industry, ITC Says
In a review of how the domestic industry has or has not been given breathing room to adjust to imports, the International Trade Commission says there has been some improvement in the financial performance of domestic washing machine producers, increased production and employment, and progress in implementing adjustment plans. Imports have declined, and Samsung and LG started production of washers in South Carolina and Tennessee, respectively, though they are having difficulties ramping up.
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But all companies say demand has declined for washing machines, and data show that the U.S. companies' hiring got ahead of demand, so productivity is declining, and there are higher per-washer labor costs as a result. Whirlpool, which says the safeguard needs to continue for the full four years, says the decline in demand is because it is 10 years since the Great Recession, and there is an approximate 10-year replacement cycle for washers. But LG, a Korean firm, says demand is down because prices are up. Whirlpool also complained that LG and Samsung absorbed more of the cost of the tariff than it expected, making their costs more competitive with domestic machines.
In February, in-quota tariff rates on imports dropped from 20 percent to 18 percent. An economists' study of the effects of the tariff found that prices rose about 12 percent for both washers and dryers. Dryers face no safeguard, but since the appliances are often bought in pairs, retailers took advantage of the necessary rise for washers, the economists found. Whirlpool disputes their findings. One purchaser "reported that once the import quota was reached, Samsung and LG were both short on supply in the fourth quarter of 2018, the largest selling quarter of the year, which domestic manufacturing was not able to cover," the report said.
Producers said there were steel sourcing disruptions from steel and aluminum tariffs, increased costs on electronics produced in China because of Section 301 tariffs, and they also had constraints from lack of available workers, long training periods, and a lack of injection molding capacity for making plastic washer tubs.
Whirlpool said "declining demand limited the safeguard’s remedial benefit ... [and] increased costs, including increased inbound transportation expenses and raw material costs, as well as higher fixed unit costs, resulting from lower production levels, reduced profitability." LG said the import restrictions should be terminated early, the tariff-rate quota should be raised to 1.7 million machines, and the scope should be expanded to belt-drive washers not now covered by the safeguard. The ITC didn't make a recommendation on the length of the safeguard in the report.