Broken trade laws and rising protectionism: Whirlpool fights imports, but who are they really helping?
According to a recent ruling by the International Trade Commission, imported residential washing machines and washing machine parts are seriously injuring the domestic industry. The next step will see the ITC issue a final set of recommendations in about a month to President Trump, who will consult with the Office of the U.S. Trade Representative on a final remedy.
This case offers a prime example of how our trade-remedy laws have not kept pace with the globalized economy of the 21st century.
Michigan-based Whirlpool filed the case under Section 201 of the Trade Act of 1974. Unlike countervailing duty or anti-dumping cases, which target “unfair” trade practices, Section 201 applies to “fairly traded” imports. Whirlpool’s complaint primarily targets two of their biggest competitors, LG and Samsung, both South Korean companies. Section 201’s so-called “safeguards” — rarely used, given their powerful nature—provide the option of import restrictions if a domestic petitioner can show that a surge of imports seriously injures them. The safeguards are meant to provide temporary relief for the domestic industry to adjust.
The recent history of safeguards ought to give the ITC, USTR, and the White House pause. In 2002, the U.S. steel industry successfully petitioned for relief under Section 201. The Bush administration acquiesced to their demands and imposed steep tariffs. It’s estimated that nearly 200,000 people lost their jobs as a result of those tariffs, particularly in steel-consuming industries. American workers lost approximately $4 billion in wages before the tariffs were withdrawn in the wake of an adverse ruling by the World Trade Organization’s dispute settlement body.
President Ronald Reagan also imposed safeguard tariffs; in that case, on imported Japanese motorcycles, at the behest of Harley-Davidson. While the Harley-Davidson case is often cited as a prime example of how safeguard relief under Section 201 can revitalize a domestic industry, there is good reason to doubt such accounts. As the Cato Institute’s Scott Lincicome points out in a recent study, it’s estimated that U.S. consumers paid approximately $150,000 ($351,000 in 2017 dollars) for every job allegedly saved in the domestic motorcycle manufacturing industry in 1984. Not only that, Lincicome cites two economists who found “the safeguard provided by the U.S. government until 1987 explains merely 6 percent of Harley-Davidson’s sales recovery.”
In other words, safeguards are a blunt instrument with a dubious history.
But what would be the effects of tariffs imposed on imported washing machines and washing machine parts today? Sure, it may boost Whirlpool’s bottom line, but any gain would be more than offset by losses elsewhere. Consumers would face higher prices when they go to purchase washing machines. That would affect other domestic manufacturing, the promotion of which has been a primary focus of this administration.
While LG and Samsung are South Korean-based companies, they are heavily investing in American manufacturing. In an April event attended by Commerce Secretary Wilbur Ross, LG broke ground on a $250 million plant in Tennessee, where they will manufacture washing machines and create 600 jobs. Likewise, Samsung is set to open a $380 million plant in South Carolina, which is estimated to create nearly 1,000 jobs.
Ross praised Samsung’s recent moves, stating that the administration and Commerce Department “will continue to support these kinds of investments.” In fact, when it was first reported that Samsung may be building a plant in South Carolina, Trump tweeted out a welcome statement. Hammering these companies with tariffs could upend their planned investments in American manufacturing.
In the modern economy, companies like Whirlpool, Samsung, and LG compete globally. They rely on incredibly sophisticated global supply chains and sell their products all across the world. In short, today’s economy is quite different from the economy of 1974, when Section 201 was enacted into law. Since the mid-1990s, we’ve greatly expanded trade through the creation of the World Trade Organization, NAFTA, the Central American Free Trade Agreement and various other bilateral agreements, including the U.S.- Korea Free Trade Agreement.
While it’s true we need to enforce our trade-remedy laws, the laws themselves need to be updated to reflect the reality of today’s economy. In the meantime, the ITC, USTR, and President Trump should tread narrowly when they tailor their remedies in this case. Big tariffs will undermine a core component of the president’s agenda – promoting domestic manufacturing.
Image by Arkadivna
