Samsung, LG investors unfazed by US trade action on washers

[WASHINGTON] Shares of South Korean appliance makers rose as investors shrugged off a recommendation by US trade officials that President Donald Trump impose tariffs on foreign-made washing machines they say are undercutting domestic manufacturers.

Commissioners from the US International Trade Commission, at a hearing in Washington on Tuesday, offered a range of choices within a three-year quota system for Mr Trump, who is expected to issue a final ruling by early next year.

The case is a test of Mr Trump's vow to crack down on countries that don't follow international trade rules. American appliances giant Whirlpool has accused Samsung Electronics and LG Electronics of selling washing machines in the US at below fair-market value while shifting production around to avoid US anti-dumping duties.

LG said in a statement Tuesday that it's reviewing the ITC's move, calling Whirlpool's complaint an effort to restrain competition. Samsung also issued a statement Tuesday saying "any tariff would raise prices, provide fewer product choices and impair job creation at our South Carolina factory".

Samsung shares rose 1.2 per cent as of 2.54pm in Seoul, while LG Electronics jumped three per cent.

'Negligible' Impact

While Samsung's washing machine business could be hit by tariffs, the overall impact on the conglomerate would be negligible, according to Morningstar analyst Dan Baker in Hong Kong.

"It makes a tiny proportion of its profits from washing machines," he said. "It makes the vast majority of its money from memory semiconductors, smartphones and display panels."

Whirlpool said in a statement that it's encouraged by the ITC's recommendations and is confident the Trump administration will take action "to prevent continued abuse of existing trade laws by companies that seek an unfair advantage over American workers."

Its shares gained 2.2 per cent Tuesday in New York, for the biggest one-day advance since Oct 20.

The ITC officials suggested the US impose a 50 per cent tariff on imports of large residential washing machines above 1.2 million units. The rate would be lowered in subsequent years to 45 per cent and then 40 per cent. Two of the four commissioners also recommended an additional tariff of as much as 20 per cent on imports below the 1.2 million-unit threshold.

Manufacturing Hubs

The commissioners recommended excluding nations that have trade agreements with the US from the tariffs, but South Korea's Samsung and LG brand washers would be affected because they largely are imported to the US from manufacturing hubs in Vietnam and Thailand. The US is currently in talks to renegotiate its trade pact with South Korea.

Excluded from the import tariff recommendations are countries with which the US has free-trade deals, including Australia, Canada, Mexico and Singapore, according to the ITC's statement.

The ITC's recommendations ratchet up trade tensions with a key ally at a sensitive time between the nations on economic and geopolitical fronts. In addition to the US pursuit of a free-trade agreement with South Korea, American diplomats are trying to work with their counterparts in Seoul to address North Korea's nuclear program.

In a so-called safeguard petition filed with US trade authorities in May, Whirlpool alleged that Samsung and LG pursued a strategy of selling washing machines in the US at artificially low prices. The South Korean companies would move production work between Asian countries to do an "end run" around US anti-dumping laws, Whirlpool said.

Creating Jobs

The ITC, a federal agency that investigates trade disputes, ruled last month that growing imports of residential washing machines was causing "serious injury" to American manufacturers. Whirlpool says correcting the problem will help create US manufacturing jobs.

The case is the latest in an ongoing dispute extending back years between the appliances makers. Whirlpool alleged in 2011 that its overseas competitors received unfair government subsidies.

In 2013, South Korea filed a World Trade Organization (WTO) dispute challenging the US Commerce Department's calculations. It won a ruling from the WTO last year.

The ITC's washing-machine recommendation comes as it weighs a separate high-profile trade dispute between Boeing and its overseas rivals. The commission is expected to make a decision next year on the plane maker's claim that it was injured by Bombardier's strategy of selling the C Series passenger jet at "absurdly low prices" in the US.

The Commerce Department issued a preliminary ruling in September imposing duties on the Canadian aircraft.

BLOOMBERG