Earlier this month, the United States International Trade Commission (ITC) released a report detailing its investigation into the effects of the import of large residential washing machines.
The investigators found evidence of substantial economic harm and recommended a variety of sensible economic safeguards to domestic industry — which comes as no surprise to anyone who remembers that in October, the ITC ruled that imports of washers from South Korea, mainly by Samsung and Lucky-Goldstar (LG), are harming American manufacturers. President Trump is set to make a decision on the ITC’s recommendations tomorrow. Considering that our trade relationship with South Korea is one that he himself has described as a “one-way street,” the path forward is clear.
Over the last few years, Whirlpool, a major producer in the U.S. washer market, has lost sizeable market share to Samsung and LG. While some claim that these firms’ recent accumulation of market share is perfectly fair and stems from their ability to provide higher quality washers at lower prices, a quick analysis of the facts paints a far less sympathetic picture.
Currently, Samsung, LG, and other Korean firms benefit from generous subsidies from the South Korean government. For example, in 2012 the South Korean central government gave Samsung Group a direct subsidy worth over $155 million. These high subsidies allow South Korean firms to sell washers in the United States not only below their market price, but also below their production cost. Moreover, there’s good reason to believe that they’re selling these washers with the intention of driving U.S. washer manufacturers out of business. This is a textbook case of “dumping,” exporting a product at a price that is lower in the foreign market than the price charged in the domestic market.
According to the ITC’s report, South Korean firms are exporting washers into the U.S. market “in such increased quantities as to be a substantial cause of serious injury to the domestic industry producing an article like or directly competitive with the imported article.”
For entirely understandable reasons, this sort of predatory economic behavior has long been prohibited both in the United States and within the context of our international trade agreements — including the Korea-U.S. Trade Agreement (KORUS). Ironically, despite allowing its firms to dump in our markets, South Korea doesn’t tolerate foreign companies (e.g. Chinese companies) dumping in its own market. And there’s a good reason to prohibit dumping — it harms domestic industry and exacerbates negative trade balances.
The U.S. trade deficit with South Korea stands at $19.8 billion. This is in no small part because KORUS isn’t actually a free trade deal. We’ve opened our markets to predatory firms subsidized by the Korean government while simultaneously doing little to protect our own industries. It’s no surprise that Trump drew a lot of support from American manufacturers when he described the U.S.-Korea Free Trade Agreement as a “job-killing trade deal.”
In that vein, it’s likely that if the president doesn’t take the ITC’s advice, manufacturing jobs that Samsung and LG promised to bring to American soil will be lost. According to the ITC’s report:
The communities where LG and Samsung are planning to operate new U.S. plants could eventually benefit from a shift in market share from Whirlpool and GE to LG and Samsung. In the absence of safeguard relief, however, LG and Samsung would have less of an economic incentive to follow through fully on their planned investments, particularly in light of their substantial recent investments in LRW [large residential washer] production for the U.S. market in Thailand and Vietnam.
The ITC recommends in their report a graduated tariff on imports of washers above a 1.2 million-unit threshold over the next three years, which would begin at 50% the first year and gradually move downward to 40% by the third. Effectively, a graduated tariff like the one described in the report would make it impossible for foreign firms to dump in the United States because after the threshold is reached, the sale price of imported washers would be higher than both their production cost and the market price.
Failure by the administration to take action in the coming months would be tantamount to a desertion of the president’s campaign promises and would result not only in damage to the American economy, but also to the wellbeing of America’s washer manufacturers — many of which supply relatively well-paid jobs to America’s middle class. The days when the United States could afford to ignore the costs of illicit and injurious trade practices are long over. The president should accept the ITC’s recommendation.