Last week’s decision by Trump to impose 50 percent tariffs on washing machines and “key components” has upended the supply chain and threatened investments across other industries, according to company officials and the South Korean government.
“It’s unprecedented and excessive, and will set alarm bells ringing for other companies doing businesses in the United States,” said one Samsung official, declined to be named as he was not authorized to speak to media, reports Reuters.
Both Samsung and LG Electronics committed millions of dollars last year to build manufacturing plants and bring jobs to South Carolina and Tennessee. But one company executive said the tariffs caught companies by surprise and was a “worst-case scenario.”
Samsung is saying they will use imported components until its U.S. factory is running at full capacity, which should be later this year. By then, it should be ready to manufacture key parts. As it is, Samsung, as well as other manufacturers around the U.S. rely on a huge global manufacturing base in low-cost countries, like Vietnam and other Asian countries.
With the tight quota imposed on key parts and components, Samsung and LG don’t have much flexibility in their supply chain. And to make matters worse, the threat of further tariffs on other imports could disrupt other businesses who rely on parts not made in this country.
“Even if you bring your tier-1 supplier with you to … the U.S. manufacturing facilities, your tier-1 suppliers will have tier 2 and 3 suppliers which would source components from abroad. It makes it very complicated to calculate,” a senior executive at Korean automaker Hyundai Motor told Reuters.
Cutting the supply chain off at the knees
The decision by Trump in the “Section 201” safeguard case came after the U.S. International Trade Commission found last year imports were “a substantial cause of serious injury to domestic manufacturers” including Whirlpool Corp.
As it is, South Korea’s washing machine exports to the U.S. have dropped almost 50 percent over the last five years, according to customs reports. Korea Customs Service said washer exports last year amounted to US$118.6 million, down $4.56 million from 2016.
However, imports into South Korea jumped 40 percent last year, primarily because of the offshore relocation of production plants and cheap products from China. Now, with the new tariffs, industry watchers fear a further decline in exports to the U.S. is in store.
Samsung and LG Electronics, together, exported about US$1.0 billion worth of large residential washing machines to the US in 2016. Samsung holds a 16 percent share of the market and LG holds a 13 percent share. Their U.S. rival, Whirlpool has the lion’s share at 36 percent.
