The Trump administration’s decision to issue a tariff on large washing machines (washers) is expected to create a significant influence on industry players as well as consumers. Washer manufacturers importing products outside the US are expected to face a significant price disadvantage as compared to US manufacturers whose production plants are mostly based in the US. There is growing concern outside the washer industry as well on potential tariff on other industries.
And the winner is…
Due to the tariff, price increases and loss of share are inevitable for non-US manufacturers. As seen from past cases of the tariff implemented in the US washer industry, US manufacturers, such as Whirlpool, will be able to restore share from non-US manufacturers, such as Samsung and LG, to a certain extent. However, preferential advantage that US manufacturers will enjoy from the tariff effect will not last long. Non-US manufacturers are already taking actions to avoid the tariff including the shift of production plants to the US.
Potential negative impact for US consumers
Driven by the tariff, the price of the cheapest washers available – mostly from non-US manufacturers – will increase and in turn, the average prices of washers is expected to shift upwards. This will limit affordability of washers to consumers, especially for low-income households in the US, resulting in a slowdown of the overall washers industry. This will impact other adjacent industries, such as refrigeration appliances, large cooking appliances and microwaves. Slowdown in the washer industry may reach other major appliance groups in the US.
Other countries respond to US tariffs
The next target, if any amongst appliances, can potentially be fridge-freezers. Fridge-freezers are the next fastest-growth product for non-US manufacturers, and also one of the highest volume appliances in the US. However the US government may need to carefully assess expected consequences of additional tariffs as there is already retaliation action happening from other countries against the recent safeguard tariffs approved. Governments of major economies have started considering retaliation duty against US imports including the Chinese government, who has already announced implementation of new tariffs on products from the US. If reprisals continue, it might trigger a trade war from which no one will benefit. Trade wars will only cause decline in economy growth of not only combatants but also other emerging economies given the nature of today’s intertwined economies, consequently bringing stagnation to the global economy.