When the government plays referee in a competitive market

Leveraging protectionist sentiment, Whirlpool goes into the spin mode

new york stock exchange
Matthew Kandrach

Whether intentional or not, a lot of President Trump’s rhetoric on trade, both as a candidate and since, has rekindled in some pundits a teary-eyed nostalgia for protectionism. Odes to America’s working class, who are seemingly cast aside in our nation’s quest for cheaper, foreign-made products, have proliferated our airwaves and dominated political pages.

While the needs of America’s workers and businesses should clearly be a top priority for lawmakers, we all know economic realities don’t always fit into a tidy script. In a given year, the U.S. economy creates and destroys some 30 million jobs. Trade accounts for many of these job gains but only a fraction of losses. Automation, business decisions, currency fluctuations, and even the weather account for much of this churning. But consumer preferences play an enormous role like no other.

Trade is central to economic growth. It drives competition, expands choices, and adds market dynamism that benefits consumers and workers alike. Unfortunately, many who are enamored by protectionist trade policies see it differently. They view all woes suffered by American workers through the spectrum of unfair or illegal trade practices by foreign governments and companies. The danger in this viewpoint is the overlooked economic harm visited upon us all when government seeks to play referee in a competitive market.

Not surprisingly, it didn’t take long for a U.S. company looking to leverage these renewed protectionist sentiments to petition the Trump administration to step in to help it compete with its more innovative rivals. In May, U.S. appliance maker Whirlpool invoked Section 201 of the Trade Act of 1974 to ask the U.S. International Trade Commission (ITC) to impose restrictions on imports of certain Samsung and LG washing machines. Whirlpool claims that it is seriously injured by these imports and is hoping to convince the ITC to restrict imports of both assembled products and parts to give itself breathing room in the market.

The Section 201 safeguard action holds great potential for misuse and unintended consequences, so much so that presidents have agreed to import restrictions in only a limited number of cases over the last 40 years. Indeed, when President George W. Bush agreed to restrict steel imports in 2001, it caused enormous hardships for domestic steel consuming industries and prompted retaliation by countries overseas.

As the ITC investigates Whirlpool’s petition, the interests and decisions of consumers should be paramount. While Whirlpool is a well-known American brand, Samsung and LG have emerged as formidable competitors by offering consumers top notch products with numerous innovations. We are no longer limited to top-loading white cubes with two dials and a small handful of features. Samsung and LG offer sleek designs and state-of-the-art technologies that, until now, consumers typically did not associate with the mundane chore of doing laundry. For example, consumers now benefit from features such as adding stray items to a load already in progress, and models that can do more than one load at once. Washing machines even vie for attention at the famed Consumer Electronics Show in Las Vegas, not your typical showcase for new appliances.

 In its investigation of serious injury, the ITC will consider whether imports will lead to the idling of facilities and workers and impede Whirlpool’s profitability. On that front, Whirlpool could be in an uphill fight. At a recent hearing before the ITC, it was noted that Whirlpool’s North American operations posted a profit of $5.5 billion last year. As important, the ITC should consider the impact on U.S. jobs and foreign direct investment, as any import restriction would adversely affect plans Samsung and LG have to invest in manufacturing facilities in South Carolina and Tennessee that will bring hundreds of high-paying jobs to those states.

Should Whirlpool prevail, the loss for consumers will be compounded as other innovation-challenged companies seek refuge in protectionist remedies. Insulation from the competitive market isn’t a workable business strategy, and serves only to expedite the demise of those companies who embrace it. That’s also bad news for workers, like those in Tennessee and South Carolina poised to benefit from exactly the kind of foreign direct investment the administration says it wants. Rewarding companies who fail to keep pace with innovation punishes workers and consumers by both limiting markets and encouraging a needless trade war.

American companies succeed by being more efficient, more nimble and more creative than their competitors. When they use trade laws to temporarily boost their bottom lines, it is American workers and consumers who pay the price.

 

This article was originally featured on The Washington Times, please click here to read the original.