Whirlpool Goes to Washington

Faced with robust, lower-cost overseas competition from LG and from Samsung, another Korean electronics conglomerate, Whirlpool in December 2011 turned to Washington for help. Executives said LG and Samsung were unfairly pricing their washing machines too low and sought a tariff on competitors’ products. That process culminated this January, when the Trump administration sided with Whirlpool and approved new tariffs on foreign-made washing machines.

Trump’s decision has been widely depicted as a protectionist president siding with an American manufacturer over consumers. That’s true—President Trump makes no secret of his affinity for products made in America, and Whirlpool’s competitors quickly announced the new tariffs would cause them to hike prices of washing machines by up to $100 apiece.

But a review of hundreds of pages of testimony and exhibits before the United States International Trade Commission (ITC) shows that the story of competition in washing machines is more complex than a patriotic company suffering at the hands of unscrupulous foreign competitors. While Whirlpool positioned itself as a proud supporter of U.S. workers this time, at other times it had no scruples about building appliances for the U.S. market abroad when it suited its interests. The case shows how U.S. companies use international trade law as a competitive weapon against rivals with the blessing of politicians from both parties.

All of the companies that make and sell washing machines are big multinational firms with factories around the globe. One of the many ironies of this trade case is that in the name of advancing U.S. interests, the government is punishing LG and Samsung—which employ thousands of U.S. workers—while also helping GE Appliances, which makes washing machines in Kentucky but is owned by a Chinese company.

“In a world of international corporations with global supply chains, trying to protect a purely domestic industry against purely foreign competition is almost a fool’s errand,” says Raj Bhala, a professor of international trade law at the University of Kansas. “Those industries are less and less on one side of the border or another.”

There could be more trade cases on the way, too. A Washington Post analysis in 2017 found that the number of U.S. producers filing trade complaints was at a 16-year high. Pending cases include rubber bands from China, Thailand, and Sri Lanka; olives from Spain; and citric acid from Belgium.

The story of the washing machine tariffs starts back in the early 2000s. Whirlpool and Maytag were then the major players. They made big, boxy white washing machines, and they shrugged off any suggestion that foreign competitors could become serious rivals. Their strength was dependability. The Maytag repairman, who appeared in TV commercials over several decades, famously had nothing to do.

Yet foreign competitors, led by LG and Samsung, had begun selling washing machines in the United States with features that were popular with consumers. These new machines came in different colors, were energy efficient, and loaded laundry in the front instead of on the top.

Domestic manufacturers had their varieties, too. Whirlpool, for instance, made front-load washing machines in Germany, while keeping production of its traditional top-load machines in Clyde, Ohio, outside Toledo. Whirlpool’s CEO, Jeff Fettig, told the New York Times that cranking out new-style washing machines in Germany “was the fastest way to the American market” because the company already made them there for Europe. If he had to build a plant from scratch, he told the Times back then, he’d probably put it not in Ohio, but in Mexico. In 2004, the company announced a $320 million expansion of a plant in Mexico, which would make washing machines for the U.S. market.

Whirlpool made other competitive moves, too. It bought ailing Maytag in 2006, closed three U.S. plants, and slashed 4,500 jobs. The Bush Justice Department approved the purchase, despite antitrust concerns. The new company would make more than 70 percent of the washers and dryers sold in the U.S. market, but regulators predicted the combined company would be unable to raise prices because of the growing competition from Asian manufacturers.

But the market was changing. Consumers were increasingly drawn to stylish and energy-efficient front-loading washing machines made abroad, even though they cost more than the traditional boxy white ones that loaded from the top. People who had worked their entire careers in appliances were shocked.

In testimony before the ITC, a Home Depot executive said the switch in consumer preferences in the mid-2000s caught his company by surprise. “[On] Labor Day 2006, we introduced the LG red washer back then, and quite frankly, I didn’t think anybody would buy it,” said Bob Baird, Home Depot’s vice president of appliances and kitchens. “The fact is, people wanted to buy that, and they paid $1,400 apiece, and we were oversold for six months. So fashion is a part of it.”

LG and Samsung were making inroads in the U.S. market. Between 2008 and 2010, the market share of U.S. washing machine producers fell from 72 percent to 60 percent, according to Whirlpool. At the same time, market share of the Korean companies here rose from 20 percent to 36 percent.

The Korean brands were a hit with consumers for reasons beyond price. Consumer Reports in 2012 wrote: “Unfortunately, buying mostly American doesn’t guarantee top performance or reliability. Models from LG (including the LG-made Kenmore models) and Samsung, both South Korean brands, dominate our recommendations for both front- and top-load washers.” LG and Samsung “are the most reliable brands for front-loaders,” the magazine said, citing reader surveys.

Faced with a surge of imports, U.S. manufacturers of consumer goods have few good options. Competing on price is almost impossible because of lower foreign labor costs. They can move production abroad. They can seek to differentiate their products to show consumers that U.S.-made products justify a higher price. Or they can get out of the business entirely—as GE did when it sold its appliance unit to the Chinese in 2016.

Whirlpool took a different path. It shut down production lines in Germany and Mexico and consolidated its washing-machine manufacturing in Clyde. It began pressing its case against competitors in Washington.

In 2011, after losing the Sears bid, Whirlpool filed a petition with the ITC, claiming that LG and Samsung were illegally flooding the U.S. market with low-priced washing machines. The imports, Whirlpool complained, “compromised the economics of Whirlpool’s U.S. production of subject washers to the point where Whirlpool’s ability to maintain its commitment to expanded U.S. production is very much at risk.”

In testimony, Whirlpool’s vice president for U.S. sales, Sam Abdelnour, said: “I am fighting every day to sustain the washer business against this extraordinary discounting from LG and Samsung. I get constant pressure from the retailers to meet competition from LG and Samsung. We’re between a rock and a hard place. If we do, our best products become unprofitable. If we don’t, we’re off the floor and our volume suffers greatly. Either way, we lose and, as you can see, we lose big.”

Under international law, countries can impose duties to combat “dumping” if domestic industries are harmed by foreign-made products that are being sold for less than they are in their home market (in this case, South Korea). There’s no requirement to show that the goods for sale were sold below production cost or subsidized by a foreign government.

In the United States, the power to remedy dumping is shared by the Commerce Department and the ITC, a quasi-judicial agency whose commissioners come from both parties (appointed by the president and confirmed by the Senate). The theory behind imposing antidumping remedies is that by selling goods abroad at an unfairly low price, foreign companies could destroy domestic industries, take over an entire market, then use their newfound monopoly power to raise prices. Many economists and business professors, though, doubt that the market actually works that way.

“It’s a charming idea, that if I’m a big company, I’m going to drive you out of business by temporarily taking losses until you go bankrupt, and then I’ll jack my prices up again,” says Ram Mudambi, who teaches international business strategy at Temple University’s Fox School of Business. “They’ve been trying to find evidence of that happening for 60 or 70 years and have been able to find squat.”

Yet, after the Whirlpool complaint, the Commerce Department concluded that Korean washing machines were being sold at unfairly low prices, and the ITC approved antidumping measures against Korean-made washing machines in 2012. LG and Samsung quickly moved production to China. Whirlpool in 2015 filed an antidumping case against Chinese-made washing machines, which it won. LG and Samsung moved production to Thailand and Vietnam. Exasperated, in 2017, Whirlpool filed what’s called a “safeguard” petition, which allows the president to impose tariffs or quotas if the ITC finds imports are the “substantial cause” of “serious” injury to a domestic manufacturer, regardless of the product’s country of origin.

In the main hearing room at the ITC in early September, executives from the competing washing machine makers faced off. They were joined by Ohio’s two senators, hordes of lawyers, diplomats from South Korea and Indonesia, and more than 50 Whirlpool workers bused in from Clyde. A row of washing machines lined the back wall.

The two sides told starkly different stories. Fettig, the Whirlpool CEO, described the company’s factory in Ohio, where more than 3,000 employees of an iconic U.S. brand labored to make the best washing machines in the world but were stymied by devious foreign competitors. In just a few short years, he said, the washing machine division went from profitable to steep operating losses and had to curtail new investment and hiring.

“At Whirlpool,” Fettig said, “the washer business has been the company’s lifeblood for more than a century—at least it had been until recent years, when LG and Samsung destroyed the economics of the U.S. washer business through their flood of low-priced imports.”

Samsung executives, though, told a different story—one of savvy upstart competitors entering the U.S. market and winning customers through innovation and hard work, while Whirlpool stuck to its old ways.

“The market shifted to front-load washers. Whirlpool didn’t capitalize on this trend,” said John Herrington, senior vice president of home appliances for Samsung Electronics America. “Consumer preferences shifted to design and style. Whirlpool didn’t keep pace. How and where consumers shopped for appliances changed. Whirlpool didn’t adjust. We have not harmed Whirlpool. Rather, we recognized and anticipated the changing market and drove new trends. Consumers responded by embracing our brand.”

At times, the testimony got personal. A lawyer for LG pointed out that imports couldn’t be hurting Whirlpool too badly, since the company paid Fettig a total of $75 million between 2012 and 2016. Whirlpool last year made $350 million in profits on $21 billion in sales—a lower profit margin than that of most companies its size. About half of Whirlpool’s sales come from overseas.

In October, the commissioners voted unanimously in favor of Whirlpool. They recommended tariffs of up to 50 percent. In January, Trump approved the ITC recommendations, along with ones on solar panels, saying, “My administration is committed to defending American companies, and they’re been very badly hurt from harmful import surges that threaten the livelihood of their workers.” They were the first safeguard cases approved by a president since 2002.

Whirlpool celebrated the decision and said it would add 200 jobs in Ohio. A spokesman told the Cleveland Plain Dealer, “This case is all about fair competition among appliance companies and real benefits to consumers. Overseas competitors . . . didn’t have consumers’ best interest at heart.”

Within days, LG said it would raise prices. Goldman Sachs estimates the new tariffs will cause prices to rise between 8 percent and 20 percent. Higher prices could hit showrooms within months.

Mudambi, the Temple business professor, says the tariffs might help Whirlpool in the short run. But the future belongs to companies that innovate. “In the long run, [tariffs] are never a good idea,” he says. “It just makes them fat and inefficient. . . . It’s going to be a real uphill battle for them. It’s in the consumers’ mind now that the really fancy washing machines are Korean.”

Tony Mecia is a senior writer at THE WEEKLY STANDARD.