Trade fight on washing machines will do more harm than good
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Almost as soon as the modern global trading system took shape after World War II, countries saw the need to protect specific domestic interests.  Over the years, we have learned that overzealous use of trade remedies will likely cause more harm than good and disrupt healthy trading systems. 

The Trump administration is showing an unsettling willingness to test this proposition on cases involving solar panels, passenger jets, steel and washing machines. During his recent trip to Asia, President TrumpDonald John TrumpMueller report findings could be a 'good day' for Trump, Dem senator says Trump officials heading to China for trade talks next week Showdown looms over Mueller report MORE went so far as to acknowledge that Americans cannot blame China for taking advantage of us. The burden of protecting U.S. interests falls squarely on us. Such candor has a certain rhetorical appeal but an aggressive use of the tools at his disposal ignores the broad and deep interconnectedness of modern global commerce and overlooks the unintended consequences of retaliatory actions by our trading partners.

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The first major trade dispute for Trump to act upon concerns modules for solar panels. In October, the International Trade Commission recommended a mix of quotas, tariffs and a licensing fee to impose on solar panel imports. The case involves the rarely used Section 201 investigation, initiated earlier in the year at the request of U.S. manufacturers Suniva and SolarWorld. If the solar panels coming from China are not supported by unfair or illegal trade practices and are simply the result of leveraging arbitrage, we are improving the affordability of solar panels for American families.  The burden is on U.S. solar panel makers to differentiate their products with leading edge features and benefits that increase the consumer’s willingness to pay, thereby improving industry attractiveness.

Right in the queue behind this case is another 201 safeguard, this one requested by Whirlpool, which asserts it is threatened by imports of certain large residential washers manufactured by Korean companies, Samsung and LG.  The fact is that Samsung and LG have differentiated with superior leading edge technology building IoT into their refrigerators, washers and dryers. If Whirlpool were at the leading edge of large appliance innovation, they would not be in this position.

Section 201 refers to a provision of the Trade Act of 1974. Unlike trade remedies that take aim at unfair or illegal trade practices, Section 201 is a blunt tool that enables the president to limit even legal imports, if he is persuaded companies or sectors are being harmed, or could be harmed by imports.  Section 201 should not be used as a crutch for American companies who have fallen behind in innovation and differentiation. Presidents have rarely used this option, and with good reason. President George W. Bush’s decision to impose restrictions on steel imports in 2002 is said to have cost 200,000 jobs in domestic industries dependent on steel.

Meanwhile it did little to shore up domestic steel production. In fact, the tariffs were abandoned after only 21 months. Many experts are warning of similar outcomes in the solar case, warning that tariffs on solar panel components would cripple the domestic solar energy industry and lead to almost 90,000 job losses.

Section 201 also opens up the likely possibility that countries will simply go to the World Trade Organization to seek compensation for the harm done to their industries as result of U.S. trade restrictions. In the Whirlpool washers case, it would hardly be a surprise if Samsung and LG pursued their rights to be compensated for lost sales into the U.S. market.  

If the Trump administration supports U.S. companies using 201 cases to gain a leg up on their competition, look for the floodgates to open with many other companies and industries asking Washington for trade protection. The prospect of an escalating cycle of disruptions to domestic industries and retaliations by U.S. trade partners would breed uncertainty for manufacturers, service providers, farmers and ranchers who depend on access to markets around the works. American workers and consumers will be the ones who pay the price for protectionist trade policies in the form of lost jobs, higher prices or fewer choices.

An escalating trade tit-for-tat has never ended well. We can ill-afford to set in motion a vicious cycle again, especially in today’s globalized marketplace. As the chief architect of a global trading system credited with lifting over one billion out of poverty, the U.S. has a special responsibility to ensure it functions properly and to steer clear of short-term safeguards for individual companies.

A bedrock principle of American capitalism is that competition spurs innovation which, in turn, leads to the availability of wider range of better products at lower prices. Whirlpool’s use of Section 201 to shield itself from competition is a misuse of a trade law that could invite a spate of petitions from other companies and industries. We can only hope President Trump will reject Whirlpool’s opportunistic ploy and avoid the temptation to open the flood gates to counterproductive trade battles. What would serve American workers best is for an able and profitable company like Whirlpool to focus less on litigation and more on innovation to stay ahead of consumer demand and develop washing machines that can compete with Samsung and LG offerings.

Gary Cohen is a Clinical Professor of International Business and Supply Chain Management at the Robert H Smith School of Business at the University of Maryland.