Washing machines — VietEcon

AVERAGE HOUSE SIZE SOURCE: VALUATION & PROPERTY SERVICES DEPARTMENT, UNCHS AND THE WORLD BANK

I have lived in Austria, and the US, among other places. What is amazing about the US was the size of the washing machines. So large, nay gigantic. You can put every piece of clothing you own in them at one time. And don’t get me started about the dryers. Yes, I know they are bad for the world, but frankly who needs the world when you have fluffy warm towels! (I kid).

It helps that US domiciles are large enough to house these enormous machines. Other countries just don’t have the square footage. Homes in the US were 2,438 sqft on average in 2010, up from 983 sqft in 1950. The UK is just 818 sqft. Bigger home allows for a bigger washing machine. Bigger houses equal greater energy consumption. We need more renewables.

That actually is not the topic of my post today. What I really wanted to talk about was tariffs. Specifically American tariffs on washing machines. There is a new study out by a Fed staff member and two professors from U of Chicago on tariffs imposed by the US in 2012, 2016 and 2018.

IT’S A BIT HARD TO SEE IN THIS, BUT 2017 SAW A BIG INCREASE IN WASHING MACHINES FROM THAILAND AND VIETNAM, BUT THAT FELL OFF IN 2018 AND HAS FALLEN OFF MORE SINCE THEN. SOURCE: USITC

The main question the report tried to answer was this:

“Prominent among these questions is the incidence of tariffs: whether the amount of import taxes is passed through to consumers in the form of higher prices or absorbed by the foreign producer by lowering their export price.”

This is surprisingly hard to study in a large country like the US, partly because many tariffs have been on intermediate goods and so it can be hard to track the direct effects. Washing machines, though, are a place where the data can be examined.

In 2012, the US imposed dumping duties on washing machines produced in Mexico and Korea. That caused production to move to China. Then in 2016, the US imposed dumping duties on China, which lead to production in Thailand and Vietnam. Supported by parts from Korea. US imports remained mostly unchanged.

Finally, with new duties on all washing machines in 2018, the two main Korean companies (Samsung and LG) opened plants in the US and prices rose. A fair amount: 12%. Interestingly, prices for dryers, not subject to the tariffs but clearly a complimentary good, at least in the US, also rose.

“Moreover, we show that prices of a complementary good—clothes dryers—also jumped at the same time by a similar magnitude [around 12%], despite the fact that these products were not subject to any new tariffs during this period.”

What can we take away from this?

US WASHING MACHINE SHARE SOURCE: TRAQLINE

First, production moves: Well, basically if you put up tariffs, production can pretty easily move to avoid the tariffs. Thailand exported 23,000 washing machines to the US in 2015, this grew to 1.6m in 2017 and is now back to very low levels (even in 2018 it was down by 50%). Vietnam is similar with almost no exports in 2015 (according to the data I have), up to 1.69m in 2017 then down 59% in 2018. It helps if the manufacturers are already located in multiple geographies. These Korean manufacturers (which have very high market shares) were already manufacturing things in China, and in Vietnam. So it was easy-ish to move.

But the problem is that if production can move once, it can move again. What a pain? I personally hate moving, so I can’t believe how these companies did it. But if they are still manufacturing the most important parts in Korea, then it might not be too hard to just ship those to another place, and assemble them there.

This is pretty scary for Vietnam, which is really hoping that it will benefit from the China.

Seaborne Vietnamese exports to the United States jumped by 17.3 per cent in January and February altogether, even as Chinese shipments to the US fell by 4.9 per cent in the same period, he noted.

But it can just as easily go away, as we saw when tariffs increased on all imports, not just imports from selective countries.

Second, consumers hurt: REM was wrong, at least regards trade wars. Not everyone hurts, just consumers. Which is actually most of us. Diffuse harm, concentrated benefit. Whirlpool and GE do well. Look at Whirlpool’s 1Q figures. Units down 7%, but profits up 6%.

So lots loose out, except American manufacturers, and, it turns out, including the Korean subsidiaries. Both have opened plants in the US.

The study looks at the net affect:

“Absent additional factors, the reports of increases in domestic employment attributed to this policy of roughly 1,800 workers would result in an average annual cost to consumers of over 815,000 USD per job created (after netting out the collected tariff revenues).”

If you see other subsidies (say around Amazon moving to New York) the cost seems really high.

That means New York is offering $61,000 in incentives for each job at Amazon while Arlington is shelling out about $23,000 for each new job.

Plus, those Amazon jobs are much better than these manufacturing jobs (average salary $150,000). So maybe this $815,000 per job isn’t a great deal for the American consumer…