How Tariffs Stained the Washing Machine Market
You may not have appreciated it at the time — golden eras have a habit of coming and going like that — but a five-year stretch that started in 2013 was a pretty great time to buy a washing machine.
Inflation for home laundry equipment, as measured by the Labor Department, fell steadily during that time, which meant you could buy the same washer your neighbor bought last year for less money. Or you could buy a better one at the same price. Great news for your clothes, though maybe bad news for your friendship, if your neighbor was the covetous type.
That stretch of laundry deflation ended last year, shortly after President Trump imposed tariffs, starting at 20 percent, on imported washers. The move was a response to a complaint filed by Whirlpool, a Michigan-based manufacturer.
The company has long dominated the washing machine business — many Americans have had Whirlpools in their laundry rooms for decades — but has recently faced stiffer competition from foreign manufacturers. Whirlpool claimed that foreign competitors like LG and Samsung were flooding the appliance market with washing machines from South Korea and Mexico at prices so low that they were hurting American makers.
As an effort to help domestic producers, the tariffs worked — very briefly. Whirlpool added 200 jobs at its factory in Clyde, Ohio. Its stock price jumped $20 per share in the first few days after the tariffs took effect.
Then things went bad.
A year after Mr. Trump announced the tariffs, washing machine prices were up, as many analysts had expected. But that has not been a boon to the makers of washers because fewer Americans are investing in new laundry equipment, exposing how protectionist trade policies can backfire on the very companies they are meant to safeguard.
Tariffs of two varieties have pushed prices up
The washer-specific tariffs raised costs for importers like LG and Samsung. But another tariff issued by Mr. Trump, on imported steel, raised costs for some domestic manufacturers like Whirlpool, which took those companies by surprise.
Many manufacturers passed those higher costs on to consumers. Once stores worked their way through models that had been imported before tariffs hit, deflation gave way to sharp price increases.
After years of steady growth, sales reversed in 2018
A basic rule of economics is that when the price of something goes up, people buy less of it. That’s just what happened to washing machines.
Data from the Association of Home Appliance Manufacturers shows that shipments of washing machines increased by an average of 5 percent a year from 2015 to 2017. Last year, shipments fell 3 percent.
Retailers saw that reaction in real time. “We have seen, as you mentioned, tariffs’ impact in laundry,” Craig Menear, the chairman and chief executive of the Home Depot, told analysts on an earnings call in November.
Retailers were hurt, but manufacturers were hurt more
Washing machines make up a small slice of Home Depot’s business. They’re more important for Whirlpool, Samsung and other manufacturers — and the stocks of those businesses have been hammered this year. Laundry appliances made up nearly 30 percent of Whirlpool’s sales in 2017. The company’s shares gave up their initial gains after the tariffs were announced, and then fell some more.
Through the third quarter, Whirlpool’s unit sales were down 2.5 percent in North America, compared with the same period in its previous fiscal year. The company’s executives said in an October earnings call that they expected to be hit by an additional $300 million in cost increases, largely driven by the steel tariff, in the year to come.
A Whirlpool spokesman declined to comment, citing a company policy not to talk about continuing trade issues. But the company confirmed it did, in fact, add 200 employees in Ohio.
Things should get better in 2019
Mr. Trump’s tariff rate on washing machines will drop two percentage points, to 18 percent, this year, which should mildly ease the pressure on companies and consumers. Retailers say they have seen signs that suggest the worst is over: Ted Decker, executive vice president for merchandising at Home Depot, told analysts in November that after several difficult months with washing machines, “our laundry sales and unit productivity is on par, if not slightly better, than the average of our overall appliance business.”
The three-month average for laundry equipment inflation peaked in July, at 20 percent. In December, that increase was just 1.6 percent. This makes sense, economically: Tariffs jolted prices upward, but the overall trend in the appliance industry remains downward. If your neighbor bought a new washer last June and you buy the same one this June, there’s a decent chance it will be cheaper.
You might not even need to wait that long. Retail websites suggest that if you run out to your local appliance store this weekend, you’re likely to find a bunch of washing machines, American made and imported, on sale.