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Asian firms look for ways around new Trump tariff

CIRCUMVENT:China’s Midea can manufacture washing machines in India and Brazil, which are not targeted by the tariff, while Samsung has a plant in South Carolina

Bloomberg

An exhibitor demonstrates an inverter direct drive washing machine at the LG booth during the CES in Las Vegas, Nevada, on Jan. 6, 2016.

Photo: AFP

US President Donald Trump’s tariffs on imported washing machines, aimed at stemming the flow of cheap appliances from South Korean and Chinese companies into the US market, might end up a wash.

Targeted companies like South Korea-based LG Electronics Inc and China’s Midea Group Co (美的集團) can get around the import duty, of as much as 50 percent, by raising prices or rerouting production to countries exempt from the new taxes.

Several Asian appliance makers, such as Samsung Electronics Co and China’s Qingdao Haier Co (青島海爾), have US factories that could help ease the conflict as companies ramp up production there.

“The negative effect on the industry outside the US is likely to be small, as companies have various strategies in place to deal with this scenario,” Yuanta Securities Co (元大寶來證券) analyst Juliette Liu (劉珮昀) said in Taipei. “They can pass on cost increases to consumers or ship the parts into the US or neighboring countries for final assembly to avoid the tariffs.”

While Trump’s first major trade move as US president aims to protect the US$5.1 billion US washing machine market from cheaper competition from abroad, US shoppers might be among the most affected.

Workers could also be hurt if foreign appliance makers scale back production plans in the US.

The decision is a “great loss” for US workers and consumers, Samsung said on its Web site.

The tariffs on washing machines is a tax and will make everyone pay more, it said.

LG said in a statement the result hinders the ramp-up of its new plant and threatens new US jobs.

Representatives for Qingdao Haier and Midea did not respond to requests for a comment.

The market reaction was less than dramatic. In Seoul, LG Electronics shares closed with a gain of 0.5 percent, erasing an earlier loss of as much as 5 percent. Samsung Electronics advanced 1.9 percent. In China, Qingdao Haier slipped 2.1 percent while Midea Group climbed 0.9 percent.

Trump was responding to a recommendation by the US International Trade Commission in November to raise import duties after Whirlpool Corp, which has the biggest share of washing machines in the US, accused Samsung and LG Electronics of selling the appliances in the US below fair-market value.

While the latest duties target moves by LG and Samsung, it also applies to companies in countries that are not preferred trading partners, including China.

LG and Samsung have options. They could sidestep import taxes by producing higher-margin premium washers in their new US-based plants.

LG is constructing a washing-machine factory in Tennessee, its first US-based production facility, with completion possible early next year.

Samsung’s home-appliances plant in South Carolina, which began production earlier this month, could produce 1 million washing machines this year.

Chinese makers, which dominate the production of washing machines worldwide both under their own brands and as parts suppliers to other brands, have similarly diversified their manufacturing bases in recent years as labor costs in China rose.

They have also made big acquisitions of Western appliance brands like Fisher & Paykel and Clivet SpA to boost sales of premium goods, which deliver higher margins than their own low-cost core brands.

Midea, the world’s biggest appliance maker, has plants in India and Brazil — both countries exempt from the new washing machine taxes — while rival Qingdao Haier bought Louisville, Kentucky-based GE Appliances for US$5.6 billion in 2016.

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