Washing machines are a common figure in nearly every household. They’re bought by many, are made by an array of manufacturers and sold at a variety of retailers. While most people think about the features and prices of various washing machines, they never often think about where those machines come from. In comes the latest challenge for President Donald Trump.

In the last several years washing machines have traditionally been sold by three brands: Whirlpool, LG, and Samsung.

Whirlpool, a U.S. based company employs thousands of factory workers in areas such as Clyde, Ohio. As most manufacturing jobs have shrunk nationwide, Whirlpool has endured and in some instances thrived. They brought back factory operations from Mexico and Germany and even absorbed regional competitors such as Maytag according to the Los Angeles Times.

But, Whirlpool was not prepared for the competition that would arise from foreign competitors, LG and Samsung, both centered in South Korea. The two companies in recent years allegedly committed foul trade moves including trade dumping. This would lead Whirlpool to file a rare trade complaint against them. While LG and Samsung have been accused of dumping products at extremely low prices, the complaint targets their choice in moving plants to different countries to avoid paying duties the United States has imposed.

In early October, the United States International Trade Commission voted 4-0 to review the complaint and determine possible next steps.The Los Angeles Times reports that an independent panel will consider protectionist policies to recommend to Trump. Trump who in the past has gone on record to support protectionist policies in order to protect American businesses now must decide if such policies are necessary to protect Whirlpool.

The president has the authority to enact wide sweeping barriers in order to protect American businesses in the event that they were harmed by the activity of overseas competitors.

TraQline estimates that Whirlpool went from a 22.6 percent market share in 2008 to just 17.4 percent by mid 2017. Meanwhile, LG and Samsung have seen their market shares in the washing machine department grow. LG grew from 12.6 percent to 16.2 percent in that same time period. Samsung experienced the most drastic increase going from a mere 1.7 percent share to nearly 20 percent.

However, the issue is not black and white. Such wide sweeping tariffs if enacted, can go on to have ripple effects in the job industry, something Trump has also gone on record to promoting. “I’ll be the greatest jobs producer that God ever created,” said Trump in a January speech.

https://twitter.com/MashableNews/status/819223281207083009

Both manufacturers have announced plans to build factories in the United States. LG announced in February it would build a $250 million washing machine factory in Tennessee that would create 600 jobs. In June, Samsung announced plans for a $380 million factory in South Carolina that would be dedicated to building home appliances of which washing machines will be part of.

This would not be the first time that the United States government has had a battle between washing machine manufacturers. In 2013, under the Obama administration, the Times reported that the United States imposed duties on South Korea and Mexico for similar reasons. More so, in early 2017 similar duties were imposed on China. Whirlpool alleges that business had moved to China after 2013. Now the company is alleging that Vietnam and Thailand are home to manufacturing plants.

The committee must send their recommendations by December 4 and any type of action taken by Trump will undeniably be challenged by the World Trade Organization. The WTO in 2003 struck against steel tariffs imposed by President George W. Bush in a case that closely resembles this one.

This isn’t the only situation regarding protectionist policies that Trump is dealing with. He is also considering steel tariffs similar to Bush while also researching intellectual property protection from Chinese incursions.

Nonetheless, the president finds himself in another sticky situation. Both jobs and trade were focal points of his campaign and any one action taken on either side can have damaging effects on the other. It will be interesting to see where the war on washing machines goes from here. The silver lining is that disputes such as this are part of many that the WTO deals with and a firm answer could take years.

Sources:

http://latimes.com/business/la-na-ohio-trade-battle-20171005-story.html

http://money.cnn.com/2017/10/06/news/whirlpool-samsung-us-south-korea-trade/index.html

 

 

Officials from the United States International Trade Commission, an independent federal agency that governs trade, recently announced a range of recommendations aimed at protecting domestic manufacturers of solar equipment from unfairly priced imports, especially from China. Those included limiting the imports of certain solar components and imposing tariffs of 10 percent to 35 percent on certain products.

The trade case was led by American solar producers but fought by big buyers of solar panels. Suniva, a Georgia based solar energy company, championed the case for higher tariff on imported solar energy equipment alongside another major player in the industry, SolarWorld Americas. Suniva called the International Trade Commission’s recommendations “disappointing” in a statement, saying they were not strict enough. The company called for the administration to employ stricter restrictions “necessary to save American manufacturing.”

According to LA Times, the company had previously shuttered its solar plants in Georgia and Michigan, and claimed that they could not compete with less-expensive imported solar equipment, principally from China. Big buyers of solar energy systems, however, disagreed with Suniva, saying that a higher Tarrif will drive up the price of solar panels in the U.S., undercut the cost-competitiveness of solar and ultimately reverse the progress we’ve had in promoting solar energy.

Even some of the other manufacturers in the industry disagreed with Suniva’s idea. Twenty-seven solar mounting equipment manufacturers and their domestic suppliers wrote an open letter to the U.S. International Trade Commission in response to the Suniva’s proposal. The companies worry that the high tariffs will raise prices throughout the supply chain and ultimately cost more American jobs than they would save. They argue that cheaper solar products from China have actually been a boon to their businesses and accelerated the adoption of solar energy in the United States, where it now powers millions of American homes and businesses. A representative of these companies, Frank Maisano, says that if President Trump chooses to impose the tariff, “it will set off a chain reaction threatening workers who install solar power projects, utilities who purchase the power, major commercial users of solar power, like retailers, as well as home installers.”

The recommendations from the Trade Commission will be sent to the president by Nov. 13. He will have 60 days to decide whether to accept or to reject these ideas as he makes a final decision, which will come as Mr. Trump is preparing to travel to China next week to meet with Chinese officials on a range of security and trade issues.

 

References:
https://www.nytimes.com/2017/10/31/business/solar-industry-import-tariffs.html
https://www.washingtonpost.com/news/energy-environment/wp/2017/10/31/federal-trade-panel-calls-for-protections-against-imported-solar-panels-which-trump-could-soon-implement/?utm_term=.044f208b909c
http://www.latimes.com/nation/la-na-solar-energy-tariffs-20171101-story.html

In the November issue of The Atlantic, Yoni Appelbaum has written an interesting reflection that made me think about the current status of U.S. economy: “Around the globe, those who dislike American ideas about democracy now outnumber those who favor them. […] China whispers seductively to rulers of developing nations that they, too, can keep a tight grip on power while enjoying the spoils of economic growth.” I could not help but wonder whether the “tight grip on power” that China keeps while expands its economic power all over the world, will turn out to be an actual source of strength in the future.

Everybody knows that China is one of the leading holders of U.S.A. securities with 1,200.5 billions of dollars, as listed by the US Treasury. Currently, the U.S.A.  general government gross debt is 108.1 % of the GDP, while the China’s one is only 47.6 %. Additionally, according to Bloomberg, in the United States also the household debt is rapidly raising, and what scares most is that it is raising for necessities. Indeed, the US household debt ($12.7 trillion) has reached more than the size of China’s economy. Yet, the debt’s size and the fact that China holds a big part of it, would not be big problems if the US economy’s growth kept raising greatly: perhaps this is the most important element that we have to take in consideration when we refer to the future of USA’s economy versus the China’s one.

Even though the aggregate data released by the World Bank spread positivity last week, showing that in the 2016 the US’ GDP set to 18.57 trillion USD while the China’s GDP reached only 11.2 trillion USD, the IMF data collected till now offer a different insight into USA’s economic growth. Indeed, the annual change in GDP percentage in the US is only 2.2, compared to the 6.8 percent reached by China. Especially the IMF data referring to the exports of goods report that in the second quarter of 2017 China has reached the value of $566.82 billion, more than the $382.5 billion reached by the USA. What about the trade deficit? According to the United States Census Bureau, in August the United States ran a negative balance of 239,121.25 million dollars between exports and imports. Surely, this complex economic situation reveals that China is growing undoubtedly at a very fast pace. But can free market thrive in a country that exercises a “tight grip” on its economy? By looking at the current data, the answer seems to be affirmative: but what will happen in a long-term? We know that the most valuable sources that a country needs to improve its economy are people, capital and ideas, and how can China foster ideas and innovation through its rules? Last week The New York Times has published an interesting story that portrays very well what means being an entrepreneur in China.

We are used to talking about free market and trade, and the US along with other occidental economy – the German in the first place – have been doing business with China for years pretending that its rules and its way of looking at the market were the same we are used to. Yet, President Xi Jinping “has pushed for strengthening state-owned enterprises and has called on businesspeople to maintain loyalty to the party”, reshaping board seats and making restrictions on abroad investments.

On one hand USA is letting China enter in its free market and make deals with its companies, allowing this country to increase its exports in USA and so strengthen its economy growth. On the other hand, China is not playing by the rules. Indeed, the occidental view on free market is highly different from the China’s one. The problem it is not the one which Trump often refers to, that is China stealing jobs to US workers. In fact, the problem is subtler and concerns more the fact that, in order to make fair deals, both the parties involved should play by the same rules. Yet, as revealed by Bloomberg, in order to do businesses in China foreign entrepreneurs need joint ventures to help their companies to “navigate the complex Chinese business environment”; an environment made of strict rulers and a strong government control that still struggles to let its entrepreneurs make free choices.

Therefore, in this way China can control and reduce any form of competition, the main component of free market. Perhaps, more than focusing on China stealing jobs from US workers, the U.S. government should start thinking how much China is taking from its companies by not playing by the rules set by the WTO.

The trade relationship that U.S. and other occidental countries started with China –assuming that their economies would have benefited from it- might eventually endanger our market and especially our idea of free market.

 

 

 

 

 

The North Atlantic Free Trade Agreement is probably one of the biggest trade deals in the world, linking Canada, Mexico and the United States together. The deal has been in place since 1994, but now as it is being renegotiated its fate isn’t so clear.

NAFTA essentially encourages trade between countries by lowering tariffs on goods. Lowering tariffs makes goods cheaper because production can be easily outsourced and importing countries can easily take advantage of another country’s comparative advantage.

Unfortunately it hurts the manufacturing sector in the United States because there is cheaper labor in Mexico and U.S. companies don’t have to worry about paying an arm and a leg to get the assembled parts across the border.

For example, the U.S. Commerce Department is entertaining a tariff on imports of commercial planes of 220 percent to protect Boeing from their Canadian competitor.

Donald Trump has made it his goal to re-draft NAFTA to help support American workers and reduce the United States’ trade deficit with Mexico and Canada, both of which add up to about 52 billion dollars, less than a quarter of a percent of America’s GDP. But at the same time, there’s no argument NAFTA helps the consumer.

There are a few issues that the U.S. is trying to renegotiate, but the two biggest are rules of origin and article 19 on arbitration of trade disputes. Rules of origin basically means that country “a” can export to country “b” with limited tariffs only if country “b” is part of NAFTA.  Article 19 allows any trade grievances one country has with another country to be reviewed by a panel, and if they deem necessary, that panel can ask the relevant parties to negotiate a valid solution.

And Trump wants to add a sunset provision to the agreement, meaning that NAFTA will no longer be in effect after five years unless action is taken to renegotiate it. The problem with that idea is it creates a lot of uncertainty but it also allows the member countries (Canada, Mexico and the U.S.) to fix any potential problems that may arise with specific parts of the agreement.

Negotiators are hoping to renegotiate NAFTA before the end of the year, which may be difficult considering the diversity of each country’s economy. In the first three talks, no real progress has been made regarding article 19, the sunset clause or rules of origin.

There’s no doubt NAFTA is good for consumers, but since manufacturing is an important part of the American economy and Trump made campaign promises to protect the manufacturing industry, there’s no guarantee the renegotiation will be successful.

Sources:

https://www.forbes.com/sites/johnbrinkley/2017/10/02/trump-administration-goes-after-canadian-aircraft-maker-during-nafta-talks-why/#6f27890e27b9

NAFTA talks a chance to refit trade for the future

http://money.cnn.com/2017/08/20/news/economy/nafta-negotiations/index.html

http://www.sice.oas.org/Trade/NAFTA/chap-191.asp

https://www.bloomberg.com/news/articles/2017-09-14/ross-says-u-s-wants-five-year-sunset-provision-for-nafta