Recently, the U.S. washing machine industry has become the primary battleground upon which the administration’s “America First” protectionism war against offshore manufacturing is being fought. Samsung, a Korean electronics conglomerate with businesses spanning mobile phones to appliances, is facing accusations of import “dumping”, in which a low-cost provider imports product at well below a determined “market price”, harming domestic manufacturers. Recent accusations brought before the International Trade Commission have been catalyzed by an inflection point in domestic versus international competition in the washing machine appliance industry. Whirlpool, Samsung’s accuser and primary American competitor, has faced several quarters of deteriorating financial performance on the back of raw material price increases coupled with increased competition from lower-cost Asian manufacturers Samsung and LG. In response, Whirlpool management has announced impending price increases to recover lost margin to raw material inflation− a move that is likely to significantly undermine the company’s ability to compete. To illustrate, the price differential at Best Buy between equivalent Whirlpool and Samsung models is already $50-$100 per unit.
In early October, the ITC ruled in favor of Whirlpool, and is currently determining the degree of import relief. The stakes for Samsung are extremely high given the extent of its overseas manufacturing base− if Whirlpool were to succeed in driving up import duties to an overwhelming level, Samsung could lose its cost advantage and be forced to fully relocate manufacturing to the U.S. to maintain market share. In a previous case brought before the ITC focused on Samsung’s Chinese manufacturing operations, Whirlpool was successful in driving the ITC to lock in 52.5% final duties for five years. In response, Samsung was forced to disperse its Chinese manufacturing operations to Thailand and Vietnam to maintain its cost advantage. The current case is even more comprehensive; Whirlpool is seeking emergency, global safeguards in which Samsung would face import duties regardless of country of origin1.
In the short term, Samsung is focused on mitigating Whirlpool’s case. Management’s counterarguments consist of two major threads− first, that Samsung competes mainly on technical superiority instead of price superiority, and second, that the company maintains extensive U.S. operations, including more than $27 billion in factories across Samsung’s businesses. Furthermore, in June of this year, Samsung announced a $380 million home appliance factory in Newberry County, South Carolina, expected to create 954 jobs by 2020. The move brought political capital to Samsung’s side in the ITC debate− the company intends to gradually migrate washing machine manufacturing to this plant while relying on imports in the interim until the domestic factory is fully ramped. The build-out of a U.S. manufacturing base represents a longer-term play by the Company as it grapples with increasing protectionism against its overseas manufacturing.
Samsung management should proceed under the assumption that import duties recommended by the Trump administration will be at least as severe as prior historical precedent, which would effectively block imported washers from the U.S. market. Other industries have already witnessed the extent to which the administration is willing to counteract the offshoring of domestic manufacturing− earlier this year, the White House took aim at Toyota after it announced plans to relocate manufacturing to Mexico with continued threats of a 35% tariff on vehicles produced in Mexico and shipped to the U.S. As such, efforts to ramp the new South Carolina facility should be accelerated and additional capacity should be built out to ensure the factory’s ability to cover the American market.
As a longer-term strategy to increase penetration of the U.S. market, Samsung will need to shift its competitive advantage from cost to technical superiority, innovation and customer experience. As the broader industry moves towards “connected home” products, Samsung should be able to leverage the extensive R&D capabilities of its broader electronics organization to drive its competitive position despite losing its cost advantage.
As Samsung and other foreign competitors of U.S. manufacturers continue to face trade pressures, can they relocate to the U.S. while maintaining a cost advantage? Without the resources of a multinational technology company, would smaller, niche competitors in a market such as washing machines be at risk of exiting the U.S. market completely given the extensive capital costs required to relocate manufacturing operations in response to shifting trade protections?
 Lesley Wroughton, “Whirlpool’s washer battle with Samsung, LG heats up at trade hearing”, Reuters, September 7, 2017 accessed November 2017
 Michael Rehaut, “Post-Call Notes: Penalty Box Likely for 1-2 Qtrs, But Even a Fairly Conservative 2018 = Good Risk/Reward”, JP Morgan, October 25, 2017, via Thomson One, accessed November 2017
 Megan Cassela, “Battle of the washing machine giants”, Politico, September 7, 2017 accessed November 2017
 Micheline Maynard, “Trump’s Indirect Protectionism Moves On To Toyota After GM And Ford”, Forbes, January 5, 2017, accessed November 2017