10-4-17 3:08 PM EDT | Email Article
By Andrew Tangel 

The humble washing machine is becoming a new trade battleground between Washington and its international partners.

After years of dominating the U.S. market, Whirlpool Corp. is struggling to hold off stiff competition from South Korea's Samsung Electronics Co. and LG Electronics Inc., which have made inroads with American consumers with their sleek designs and pleasant chimes.

Whirlpool, of Benton Harbor, Mich., has won a series of conventional regulatory skirmishes by arguing its rivals are using anti-market practices to gain an edge, such as selling their appliances for less than the cost of producing them.

Now it's asking Washington to rescue it with one of the most potent -- and controversial -- weapons in its arsenal. The long-dormant protectionist measure doesn't require a U.S. industry to show that foreign competitors are cheating -- only that it has suffered "serious injury" from imports.

The decision over the 1970s-era provision, known as the "safeguard" law, is in the hands of the U.S. International Trade Commission, an independent, bipartisan federal agency, which is expected to rule Thursday on whether to recommend action by President Donald Trump. The ITC last month approved a separate petition for relief by U.S. solar-panel makers, and the Trump administration is awaiting specific remedy proposals from the body before making a final decision.

"If we had a level playing field, we would sell more, we would hire -- we believe -- at least 1,300 people," Whirlpool Chairman Jeff Fettig said in an interview.

The Trump administration has vowed to take a fresh look at a wide range of protectionist powers in pursuit of its "America First" trade agenda. Trump aides have in recent months considered dusting off other trade-law provisions to pressure China over intellectual property, and to protect U.S. steel and aluminum makers.

This marks a break with previous administrations from both parties, which played down unilateral actions in deference to global arbiters such as the World Trade Organization. Remedies under the safeguard law were last invoked by George W. Bush to protect the U.S. steel industry, in 2002. The administration soon removed the steel tariffs after the WTO deemed them improper, and industries had, until now, been discouraged from pursuing such protection.

The Whirlpool case is a microcosm of the debate over international trade. Free-trade skeptics say existing policies aimed at protecting domestic manufacturers and jobs are ineffective because conventional measures to punish foreign competitors for unfair trade practices are too easy to evade.

Proponents note the benefits to consumers of robust international competition, including falling prices. And protectionist measures that protect American companies may not help all American workers. Both Samsung and LG, following the example of many foreign auto makers, have recently launched plans to build factories on U.S. soil and hire locally.

The South Korean conglomerates blame Whirlpool for failing to keep up with American tastes.

"Consumer preferences shifted to design and style. Whirlpool didn't keep pace," John Herrington, a Samsung senior vice president, told a September ITC hearing. "How and where consumers shopped for appliances changed. Whirlpool didn't adjust."

Whirlpool attorney Jack Levy dismissed the claim as a "tired argument," adding: "Whirlpool has made tremendous innovations in its washer lineup over the years."

Whirlpool produces washing machines for the U.S. market at a sprawling factory in the northern Ohio city of Clyde, between Toledo and Cleveland. The plant's workforce of more than 3,000 employees cranks out some 20,000 washers a day.

Employees there have fretted over their own future and dimming prospects for getting relatives hired there because of shelved plans to make new products, said Paula Cosiano, an operations manager at the Clyde plant.

"They talk about it all the time," said Ms. Cosiano, who started her career as an assembly-line worker at another Whirlpool plant in Ohio. "They know that if we are not able to play on a level playing field that could mean serious harm for them and their families."

Whirlpool has long enjoyed a major chunk of the U.S. appliance market, though in the past competition came more from domestic rivals including General Electric Co.

Whirlpool shored up its dominance of the U.S. appliance market in 2006 with its $1.7 billion acquisition of rival Maytag Corp.

U.S. antitrust regulators probed whether to block the deal over concerns the combined appliance giant would stifle competition. In the end the Bush administration's Justice Department let the deal go through, concluding it would ultimately benefit consumers. It also noted fresh competition from the likes of LG and Samsung, relative newcomers into the U.S. appliance market at the time.

The South Korean companies entered the U.S. market with washers of different colors and designs, chimes instead of buzzers when a load of laundry was finished, and energy-saving features. Samsung's innovations, for example, have included a little drawer to add clothes after the machine started washing.

In the first quarter of 2007, Samsung only had a tiny foothold in the U.S. with 1% of the dollars spent on retail sales of washing machines, according to TraQline data from the Stevenson Co. research firm, while LG had 10%. Whirlpool's brands had a combined 37% share of the U.S. market.

Four years later, Samsung and LG were making inroads with washers produced in South Korea and Mexico. Whirlpool cried foul, accusing Samsung and LG of "dumping" their washers onto the U.S. market, or selling them to wholesalers below what they cost to produce. The prices would affect how much retailers pay for the washers, but not directly what consumers pay. Whirlpool claimed this practice has edged it out of prime retail floor space retailers give to higher-margin products.

In 2012, Whirlpool successfully persuaded the U.S. Commerce Department to impose duties on imported washers made in South Korea and Mexico. The regulators found that Samsung and LG sold below costs.

The victory was short-lived. Samsung and LG shifted production to China, rendering the just-imposed tariffs moot, since enforcement under the 1930s-era U.S. "anti-dumping" law is generally country-specific.

Samsung and LG's share of the U.S. market continued to grow, thanks to a mix of innovation and, at times, aggressive pricing, according to David MacGregor, senior analyst at Longbow Research near Cleveland. "It's not rocket science but clearly someone's thinking outside the box," he said. For consumers who saw the new offerings at Best Buy and other big-box retailers, "there was a wow factor," Mr. MacGregor added.

By the start of 2012, Whirlpool and its brands commanded 41% of the U.S. market. Its South Korean rivals were catching up, with a combined share of 19% of retail sales, according to TraQline.

Three years later, Whirlpool again complained that Samsung and LG were engaging in unfair trade to gain market share with their washers now coming from China. Whirlpool went back to the U.S. Commerce Department.

At a hearing in Washington, D.C. last year, Mr. Fettig of Whirlpool told regulators that underselling by Samsung and LG meant his company had to delay adding to the workforce at its Clyde plant, eat operating losses in its washer segment and put off investing in new washer types.

"I believe this situation is unsustainable for U.S. manufacturing," he told them.

As regulators mulled new tariffs, Samsung and LG shifted production again -- this time to Vietnam and Thailand, where the two companies already had factories.

Mr. Trump's election victory in November 2016 gave manufacturers such as Whirlpool fresh hope for more aggressive protection.

Peter Navarro, an adviser to Mr. Trump on manufacturing and trade policy, pointed to Whirlpool's dumping allegations against Samsung and LG earlier this year as "precisely the kind of trade cheating that must be stopped."

"This heartland of America icon is grappling with a practice called country hopping, in which two of its South Korean competitors, LG and Samsung, simply move their production to another country each time Whirlpool wins an anti-dumping case against them," Mr. Navarro said at a gathering of economists.

During a speech in September, U.S. Trade Representative Robert Lighthizer suggested tough trade policy could compel foreign manufacturers to invest more in the U.S. Mr. Lighthizer pointed to cases of Japanese auto makers deciding to build their own factories in the U.S.

Samsung and LG haven't officially been accused by Whirlpool or trade regulators of dumping washers manufactured in Thailand and Vietnam into the U.S. market, and the two companies have repeatedly denied violating U.S. trade laws. Combined, they now command 35% of the U.S. market, neck-and-neck with Whirlpool.

Both companies, meanwhile, announced plans this year to open factories in the U.S.

LG is building its first-ever major U.S. factory, a $250 million washing-machine plant near Clarksville, Tenn. The investment was praised by U.S. Commerce Secretary Wilbur Ross, who joined local officials shoveling dirt at a groundbreaking ceremony there. "Foreign direct investment in America is a win both for the company and our nation," Mr. Ross said at the event in August.

John Riddle, LG's senior vice president for U.S. home appliances, warned in an interview that consumers would wind up paying more if the U.S. imposes new duties on imported washing machines. "It's fair to say the pricing would go up," he added. "We would still certainly try to be competitive."

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October 04, 2017 15:08 ET (19:08 GMT)

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