_What do you do when you get yelled at… ( placate – verb – to make someone less angry or hostile)
On Tuesday we noted that the newly appointed Director of the White House Trade Council (a newly created position), Peter Navarro, berated Samsung Electronics (005930.KS) and LG Electronics (066570.KS) in reference to their competition with Michigan based Whirlpool (WHR), citing how uncompetitive it is of the South Korea giants to move facilities from one country to another after losing anti-dumping cases started by Whirlpool. "I am amazed by how hard it is for our companies to compete on a level playing field. This heartland of America icon is grappling with a practice called country hopping. Two of the South Korean competitors, LG and Samsung, simply move the production to another country each time Whirlpool wins anti-dumping cases against them. Such country hopping has happened twice to Whirlpool already. LG and Samsung have moved from China to Vietnam and Thailand. This is the kind of trade cheating that must be stopped. It undermines the whole international order, even as it puts thousands of Americans on the unemployment line. It imposes millions of dollars of losses on companies like Whirlpool."
As we noted previously, Professor Navarro did not mention the US anti-dumping duties of 52.5% on Samsung and 32.1% on LG that were imposed in December as a result of a petition from Whirlpool, based on the concept that the two competitors were selling washing machines at lower than ‘normal’ prices in the US. So what shows up in the Korean press? “Samsung mulls establishing US plant for home appliance”, resurrecting a 2/6/17 headline “Samsung Electronics to build first home appliance plant in US with production capacity of 2 million units”, which had specified Alabama as the state under discussion for the new plant.
Today’s story, which came from the head of the Samsung home appliance unit stated, “We are in internal talks to build a plant there, as part of our plan to secure a mid- to long-term strategic foothold…."We will make the details public after making specific decisions.” This appeasement to the Trump administrations whining about unfair competition is similar to LG Electronics ‘plans to build an appliance manufacturing plant in Tennessee’ that also made the headlines on 3/1/2017.
So what will actually happen? Likely something will be built by both companies in the US; an assembly plant, a distribution center, or similar operation, with significant publicity by the companies, indicating how they are compliant with the new administration’s “America First” program, and the administration flaunting the ‘hundreds of jobs created’ for American workers in massive photo-ops, but did anything really change? Will Samsung make the same product for the same price here that it does in Mexico? When you look at hourly compensation costs (2013 data shows Mexico hourly manufacturing worker compensation costs at 19% of US worker costs), it’s hard to imagine that the appliances made here will have the same price profile as those made south of the US border. So jobs are created, politicians are photographed, speeches are made, and the US consumer will pay higher prices and likely a piece of the lost government revenue from the tax breaks given to ‘incentivize’ Samsung and LG to localize their production.
Politics aside, complaining about competition, tariffs, taxes, and the other mechanisms that the US seems to have adopted to combat the fact that high volume manufacturing is a cost sensitive game, misses the point. The US is among, if not the most innovative country when it comes to product development and creation, and while the near-term focus is always on putting people back to work at any means, the real focus is developing the workforce to increase its ability to create and innovate, not try to do what others can do more cheaply. Retrain, refocus, reeducate, and above all make sure will educate a potential workforce toward doing new things in new ways, rather than going back to try to ‘rebalance’ markets that now operate on a global scale. The US consumer will be happier, the US worker will be happier, and we will be the driving force in the technology world that we have been in the past. Yes, it’s a very competitive world, and some countries don’t always play fair, but complaining and bullying won’t fix the endemic problem, only transforming the workforce from one oriented toward a world economy that thinks like we are still in the 1960’ or 70’s to one that thinks like its 2030 will push us ahead of the competition. JOHO
As we noted previously, Professor Navarro did not mention the US anti-dumping duties of 52.5% on Samsung and 32.1% on LG that were imposed in December as a result of a petition from Whirlpool, based on the concept that the two competitors were selling washing machines at lower than ‘normal’ prices in the US. So what shows up in the Korean press? “Samsung mulls establishing US plant for home appliance”, resurrecting a 2/6/17 headline “Samsung Electronics to build first home appliance plant in US with production capacity of 2 million units”, which had specified Alabama as the state under discussion for the new plant.
Today’s story, which came from the head of the Samsung home appliance unit stated, “We are in internal talks to build a plant there, as part of our plan to secure a mid- to long-term strategic foothold…."We will make the details public after making specific decisions.” This appeasement to the Trump administrations whining about unfair competition is similar to LG Electronics ‘plans to build an appliance manufacturing plant in Tennessee’ that also made the headlines on 3/1/2017.
So what will actually happen? Likely something will be built by both companies in the US; an assembly plant, a distribution center, or similar operation, with significant publicity by the companies, indicating how they are compliant with the new administration’s “America First” program, and the administration flaunting the ‘hundreds of jobs created’ for American workers in massive photo-ops, but did anything really change? Will Samsung make the same product for the same price here that it does in Mexico? When you look at hourly compensation costs (2013 data shows Mexico hourly manufacturing worker compensation costs at 19% of US worker costs), it’s hard to imagine that the appliances made here will have the same price profile as those made south of the US border. So jobs are created, politicians are photographed, speeches are made, and the US consumer will pay higher prices and likely a piece of the lost government revenue from the tax breaks given to ‘incentivize’ Samsung and LG to localize their production.
Politics aside, complaining about competition, tariffs, taxes, and the other mechanisms that the US seems to have adopted to combat the fact that high volume manufacturing is a cost sensitive game, misses the point. The US is among, if not the most innovative country when it comes to product development and creation, and while the near-term focus is always on putting people back to work at any means, the real focus is developing the workforce to increase its ability to create and innovate, not try to do what others can do more cheaply. Retrain, refocus, reeducate, and above all make sure will educate a potential workforce toward doing new things in new ways, rather than going back to try to ‘rebalance’ markets that now operate on a global scale. The US consumer will be happier, the US worker will be happier, and we will be the driving force in the technology world that we have been in the past. Yes, it’s a very competitive world, and some countries don’t always play fair, but complaining and bullying won’t fix the endemic problem, only transforming the workforce from one oriented toward a world economy that thinks like we are still in the 1960’ or 70’s to one that thinks like its 2030 will push us ahead of the competition. JOHO
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