Whirlpool’s washing machine division has been rapidly losing market share to Korean competitors Samsung and LG. The company’s response is a reflection of the upside-down times we live in and a cautionary tale about interfering with free markets.
In May, Whirlpool petitioned the government for help by asking the U.S. International Trade Commission to initiate a safeguard investigation against its Korean rivals.
Whirlpool CEO Jeff Fettig did not pull his punches when it announced the filing:
This isn’t the first time the company has turned to the government for protection from the competition. The Commerce Department imposed taxes on Samsung and LG washing machines in 2013 and again in 2015 for this behavior, and the Obama Administration blasted Samsung and LG for selling at “unfairly” low prices. These charges were proven baseless and the penalties did not stick, however; when South Korea disputed the Obama Commerce Department’s “findings” with the World Trade Organization, the WTO sided with Korea.
Protectionism has historically been the privy of the left while the right has championed free trade and free markets, but Donald Trump won the election in part because of his economic populism. What the government should be cognizant of is that closing borders to companies making significant foreign direct investments in America and hiring American workers—especially those from countries with whom we ostensibly have a free-trade agreement—damages America’s standing abroad, making it less likely that we’ll be able to do future agreements—military or economic—with other countries.
In this case, the timing is not only bad—Congress is urging Trump not to scrap our broad free-trade agreement with South Korea, an important trade partner—but the protectionism seems particularly unwarranted. When domestic companies seek federal trade protections against foreign based businesses they must prove unfair trade practices. This might include unethical, deceptive, or even illegal methods of obtaining business.
In this case, however, no one is alleging that Samsung and LG broke any laws; rather, their only real crime seems to be making better washing machines than Whirlpool and forcing Whirlpool to compete for customers.
Any ITC action would send the wrong signal to one of our most important trading partners, South Korea, where the two of the companies are headquartered; and it would also directly impact the U.S. economy as both plan to manufacture the washers in question in the U.S. Samsung and LG are opening factories in South Carolina and Tennessee to manufacture and assemble the sleekest and most advanced washing machines on the market in America and, most notably, made in America.
This competitive challenge is why Whirlpool is seeking a rare safeguard investigation, which—unlike more traditional anti-dumping and countervailing accusations—does not require a finding of unfair trade practices, only that the importers have “a substantial cause of serious injury.” Given the current nationalistic political climate, Whirlpool could probably win such a case merely by proving that the Korean companies hurt their feelings.
While the Whirlpool CEO is understandably focused on its short-term stock price and the company’s recent sales performance, a presidential administration should encourage free market competition and investment in America instead of picking winners and losers in the marketplace to help one company looking to gain unfair advantage.
If the Trump administration succumbs to Whirlpool’s pressure and limits competition in the U.S. market, foreign governments may be tempted to do the same. There is already a fear that the hawkish trade pronouncements from the Trump White House could potentially lead to a beggar-thy-neighbor policy that undermines our global trading system. Throwing up a roadblock to modern washing machines that will be manufactured in the U.S. just confirms for many that it may soon be “every man for himself” on trade policy.
South Korea has long been America’s economic, political, and military foothold in Asia and we have had a tight relationship with the country since the Korean War. Playing a penny ante game of protectionism with our staunchest Asian ally could come with repercussions that dwarf any short-term improvements to Whirlpool’s 2018 bottom line.
