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Consumers taken to the cleaners

Consumers are being taken to the cleaners by a tax recently imposed on washing machines. On Jan. 22, President Donald Trump announced an import tax (tariff) of 20 to 50 percent on washing machines imported from South Korea and China. If you are in the market for a new washing machine, then you should buy it now before prices rise.

What’s the point?

The economics: It’s simply supply and demand. If the costs of supplying washing machines increase, then consumers will buy fewer washing machines. Import taxes increase the costs of washing machines produced in places like China and South Korea, so consumers buy fewer foreign-produced washing machines and more domestically-produced machines.

The politics: It’s all about votes. Those who benefit from import taxes, such as Whirlpool Corporation’s workers and stock holders, are likely to remember on election day. In Whirlpool’s hometown of Benton Harbor, Michigan, the imposition of the import tax was big news. On the day it was imposed, the tariff was the top story in Benton Harbor’s local newspaper The Herald-Palladium. Consumers who are harmed by import taxes are unlikely to even know they are being harmed, so few, if any, votes are lost. For example, in northern New York, the only newspaper article that mentioned the import tax was a column by national syndicated columnist George F. Will. In that article, Mr. Will panned the import tax.

Politicians clean-up at the polls by imposing import taxes.

Is it fair?

Often, the argument for imposing import taxes is to protect American companies from unfair foreign competition. Not so with the import tax on washers. This tax was imposed according to Section 201 of the Trade Act of 1974 that does “not require a finding of an unfair trade practice.” Sadly, but not surprisingly, the Trump Administration is now the party promoting unfair trade practices.

According to Consumer Reports:

“This is an unusual trade law, rarely used,” says George Slover, senior policy counsel at Consumers Union, the policy and mobilization division of Consumer Reports. “It allows a challenge to imports based solely on the imported product making it too hard on the U.S. manufacturer. No unfair trade practice or other wrongful conduct needs to be alleged or shown.”

That raises several ethical questions. If foreign makers of washing machines are playing fair, then why should lower-income households, such as those here in Essex and Franklin counties, pay higher prices to support higher-income households, such as those of Whirlpool’s employees? If foreign makers of washing machines are playing fair, then why should consumers pay higher prices to support Whirlpool’s corporate executives’ multi-million-dollar compensation packages? Beats me. One thing we do know, though, is there are both winners and losers when the Federal government assesses taxes on imported goods.

The winners

In an announcement on Whirlpool’s website, CEO Jeff M. Fettig said “This is a victory for American workers and consumers alike. By enforcing our existing trade laws, President Trump has ensured American workers will compete on a level playing field with their foreign counterparts, enabled new manufacturing jobs here in America and will usher in a new era of innovation for consumers everywhere.”

Whoa … talk about fake news! The import tax is neither a victory for American consumers nor for innovation. Competition spurs innovation not anti-competitive import taxes. The tariff is certainly a victory for Whirlpool’s workers, though, but it’s a big stretch to say the import tax is a victory for American workers as Whirlpool employs a minuscule portion of the American workforce.

The biggest winners are likely to be the key executives of Whirlpool Corporation who are pulling down multi-million-dollar compensation packages. The Securities and Exchange Commission requires companies to report the compensation of publicly-traded companies’ top executives. Let’s take a peek at the compensation packages of Whirlpool’s top execs …

Key executive compensation in 2016

¯ Jeff M. Fettig, chairman of the board and chief executive officer, $16.1 million

¯ Marc R. Bitzer, president and chief operating officer, $6.4 million

¯ Esther F. Berrozpe-Galindo, president, Whirlpool Europe, Middle East and Africa, $4.5 million

¯ Larry M. Venturelli, former executive vice president and chief financial officer, $3.4 million

¯ James Peters, executive vice president and chief financial officer, $3.2 million

¯ David T. Szczupak, executive vice president, Global Product Organization, $3.1 million

(Source: Morningstar)

Of course, the workers of Whirlpool also benefit as their jobs might be more secure, and Whirlpool’s employment might rise.

The losers

Consumers, like you and me, are the losers because import taxes increase prices. Let’s do the math. As reported by Consumer Reports, data from the Association of Home Appliance Manufacturers indicates 9.7 million washers were shipped to retailers in 2016. Andrew Tangel of the Wall Street Journal reports LG and Samsung have about a 35 percent share of the washing machine market, and LG is expected to raise the price of its washers by $50.

Given those numbers, a very conservative, seat-of-the-pants estimate shows the import tax could cost consumers upwards of $175 million per year. Probably much more. For each job in the washing machine manufacturing industry, that would work out to several thousands of dollars, maybe tens of thousands, in increased costs to consumers. How much more would you be willing to pay for a washer to save jobs at Whirlpool and support its top executives’ multi-million-dollar compensation packages?

Effect on local retailers

According to Mark Palyswiat, manager of Casier Furniture, and Steve Sullivan, sales associate, sales of appliances are up significantly over the year. Fortunately, they also expect the import tax to have little, to no effect on their business because Casier Furniture carries domestically made washers. However, Palyswait did note big-box retailers and others who carry LG and Samsung machines might be affected.

Watch your behinds for more import taxes

Can’t sleep? Try reading through the United States International Trade Commission’s Office of Tariff Affairs and Trade Agreements 2018 Harmonized Tariff Schedule. I did, and here is what I found …

Scrolling down alphabetically through the tariff schedule, I quickly came across the tariffs on animals including a category for live horses, asses, mules and hinnies. You guessed it … if you import a donkey, then the government will slap an import tax on your, ahem, animal. There are some exceptions depending upon where the animals are imported from, but believe it or not, there are no exceptions for jackasses imported into Washington, D.C. Not even following election years.

Given the current administration’s tendencies for anti-competitive trade policies, consumers need to watch their behinds for new import taxes. And on that, you can bet your bottom dollar.

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