The case of washing machines in 2018 during the first Trump duties: that’s why the commercial war does not benefit anyone

What we are experiencing today is the second commercial war launched by The Donald. The first, seven years ago, had seen the United States trigger one Trade Warthen unprecedented in the modern era, with the imposition of duties on a whole series of goods e The declared goal of protecting US producers from international competition. More or less, what the former Tycoon supports even today. In 2018, however, there were not many a priori tests capable of arguing that the new rates would positively influence the US economy and modified the global one. Already two years after the outbreak of that first commercial war, however, theAmerican Economic Review it cooled enthusiasm with a detailed analysis of the impact on commercial flows, on national production and prices of one of the first affected products, the washing machines. Not only had these articles became more expensive, but also the prices of the dryers, who were not subject to rates, had increased.

The Whirlpool case

The case of the Whirlpoolthe US multinational manufacturer of appliances based in Benton Harbor, Michigan. The company had invoked duties and tariff protections for years By the United States government, saying that they were necessary to safeguard workers and stars and stripes from the unfair competition of Asia washing machines. The latter, supported Whirlpool, did dumpingthat is, the practice of exporting appliances to much lower prices than those practiced on the internal market, or even under cost, and with the support of their states, in order to take over the American market. When Whirlpool found a supporter in Trump, he stopped the bottle, but he didn’t start to see the problems increase. The first consequence of the first Trade War Trumpian had in fact been the increase in internal priceswith American consumers forced to pay more for their washing machine. Thus he slammed the autarchic dream of the then German CEO in front of the raw reality of numbers, Marc Bitzer. Rereading the articles of the Wall Street Journal Of the time, it is understood that the American division of the multinational appliances as a great supporter of the commercial war had in fact found herself soon to be one of the first victims.

The tradition of duties

The rates introduced by Trump in his First Commercial War were not in itself new. The duties have long been used by governments to protect special industries and to exercise political influence on foreign competitors. And America had already done so before Trump. In 2007, in fact, Whirlpool and its associated brands sold 37% of American washing machines, but at that time the Korean Samsung and LG They began to produce washing machines in the Mexico plants with the aim of then selling them in the United States. In 2012, Whirlpool had accused Korean companies of dumpingobtaining from the Department of Commerce, the imposition of the duties to the washing machines imported from South Korea and Mexico. Asian companies, then, simply moved production to China. When the outgoing Obama administration introduced the gabelles in 2016 anti-dumping on washing machines imported from China, Samsung and LG had already moved to Vietnam and Thailandito. In the meantime, Trump had arrived at his first term at the White House. Whirlpool, promising hiring and new push to the American industry, asked and obtained to apply An old law of the seventies of « safeguard » which requires rates to the entire washing machine market, without distinctions between countries. Trump in early 2018 hit Chinese washing machines (but also solar panels) by introducing 20% ​​rates on the first 1.2 million washing machines imported into a year in America; and 50% on all subsequent ones.

The relocation of the companies affected by the duties

Asian companies once again moved production, however opening the factories in the United States this time (moreover, remaining in Italy and the current commercial war, too The CEO of Illycaffè, Cristina Scocchia, said that in the unfortunate case the duties hit the coffee, the company will be forced to relocate in the United States the production reserved for exports, with consequent loss of jobs in Italy). And here the first blow: With the new openings of the factories in the USA, the prices of the washing machines had increased by 12%. In addition, even the dryers had become more expensive, although they were not subject to rates. The median price of washing machines and dryers had increased by approximately 86 and 92 dollars per unit respectively. But why? The washing machines and dryers are complementary products that are usually purchased in the United States together and retailers are made more or less the same way. Faced with the increase in the costs of selling washing machines in the States, the companies had compensated for the lowest margins by increasing the prices of the dryers.

American consumers paid

Overall, it was estimated that A percentage between 108 and 225% of the 2018 rates were transferred to consumers through the increase in prices. The first effect for Whirlpool was recorded 7 months after the introduction of the duties, its shares in fact dropped 15% percent from the beginning of the year, while the net revenues, despite the cut of taxes for companies introduced by Trump, had dropped by 64 million dollars compared to the previous year.

Steel and aluminum

The First War of Trump was obviously not only to the washing machines, which we took here as an emblematic example of the effects not expected of this type of actions. After the gabelles on these appliances, in fact, Trump in March 2018 introduced 25% rates on steel and 10% on aluminum imported from all over the world. In June, then, extended the duties to the closest commercial partners: Canada, Mexico and the European Union: the latter, together with China, reacted with retaliable measures. Others, however, such as South Korea, Argentina, Australia and Brazil obtained exemptions. And it is to this that, perhaps, Trump alludes when he says that this time it will be « very kind » with the commercial partners of the United States, ensuring that the duties will be « lower » and in some cases « significantly lower » than those imposed by other states.

In the long run, Trump’s commercial wars will reduce the US GDP

The penultimate US president Biden had partially suspended this system of duties, promoting a limited volume of steel and aluminum produced by European Union countries. But on the rest, Trumpian protectionism had remained, in some cases even strengthened. The Tax Foundation international research Tank, which is based in Washington, has estimated that « the tariffs of the 2018-2019 commercial war imposed by Trump and maintained by Biden will reduce the long-term GDP of 0.2%, the capital stock of 0.1% and the occupation of 142,000 full-time jobs ».

The increase in the tax burden in the USA

As regards, however, the new program of duties that Trump has started using the International Economic Emergency Powers Act (the IEPA unilaterally authorizes a president to manage imports during a national emergency), when rates on steel and aluminum and cars and cars will be fully imposed, they will reduce the US GDP – always according to Tax Foundation – of 0.4% and will « increase the tax burden of 1,100 billion dollars between 2025 and 2034 », which means an annual increase for family of over 800 dollars. And all this without counting the effects of foreign retaliation.

Inspire: « Dice at 20% -25% blow for all countries, including the United States »

If Trump will go all the way with his project, the middle duty weighed for American trade will go from 1.4% of the years of maximum liberalization to 13%, close to the levels of the period of protectionism and isolationism between the two world wars, as calculated theInspire. According to the Institute for International Political Studies, «The duties at 20% -25% would be a blow for all countries, the United States included. The EU, however, would be affected by a reduction in double GDP (-0.4%) compared to the American one (-0.2%) « . Inside Europe, then, the German one is the most exposed economy (-0.5%), while Italy is located around the EU average. « In the case of European retaliation », continues the analysis of the ISPI, « the recourse on the growth of Europe itself would be even stronger ». On cars, affected by a further duty of 25%, Europe risks a lot. Exports to the USA are more than tripled in the last 15 years, from 15 to 51 billion euros. A level now double compared to exports to China, which in the last five years has instead recorded a clear flexion (-17%). Both for Italy and for the EU, the inspire explains, « exports to the United States weigh for about 3% of the GDP.

What Italy is in risk

From the sectoral point of view, however, there‘Italy is more exposed on finished products (19% of its exports, against 11% European) and in food (11% against 5%). The impact of the duties will therefore be different according to the products that will be most affected. For Italy, the exports of machinery and vehicles to the United States apply almost 24 billion euros. Of these, just under a third come from industrial machinery (the US market represents 12% of the total) and a sixth from cars. The non -road transport sector is the most exposed to the United States (destination of about 19% of the exports of these products) but only 1.7 billion is worth the inspire. Finally, in the food, The most exposed sector for Italy is that of drinks (alcoholic and non -alcoholic)with 25% of our exports to the United States. The sectors of cereals, dairy products and eggs are also important: together their value is approaching that of drinks, even if the average exposure of these sectors towards the United States is halved (13%).

De Bortoli: «The duties? Game at zero sum « 

For the inspire, Trump’s attempt to « repatriate » the production towards the United States through the duties, which would be able to generate sufficient revenues to settle the federal deficit, is one « illusion ». The additional revenues generated by this return of duties « will be at 200 billion dollars a year. But the American federal deficit is around 1,800 billion, or nine times a lot ». If Trump wants to refinance the cut of taxes launched in 2017 he will have to find another 450 billion. The result? « The deficit, instead of decreasing », concludes the inspire, « at the end of the year it could exceed 2 thousand billion ». In short, As Ferruccio De Bortoli writes wisely on the courier« Always the duties, and worse a commercial war, represent a vicious circle, a game with a negative sum ».