Independent, Fee-Only Financial Advisor

Independent, Fee-Only Financial Advisor

Wednesday, April 24, 2019

Dirty Laundry

I’ve been thinking about washing machines.

Once luxuries, these appliances are standard fixtures in most households. I remember my first washing machine and the pure joy that came with knowing I would no longer have to hunt for quarters or wait for an empty machine in the laundromat. These days, we think of these machines as part of a pair—washing machine AND dryer. Because who has time for clothesline drying? And who wants their wet unmentionables flapping in the breeze?

In 2016, 80% of the washing machines imported into the US came from China. Chinese washing machines cast a wet blanket over US washer production, leading the Obama administration to impose protective tariffs on the item. The tariffs were specific to Chinese-produced machines, so they just moved to Vietnam and Thailand. We continued the spin cycle with little effect on consumers.

But in 2018, the Trump administration put all foreign machines in hot water, instituting tariffs on imported washers, regardless of the country of origin. Now, I’m not a fan of protective tariffs, and we never seem to learn our lesson on them. It’s like putting that red pair of underwear in your load of whites. Pink is going to get on everything, and we’ll all suffer.

The latest tariffs on washing machines resulted in higher prices to consumers, 12% higher. That means a $500 washer now costs $560, on average. While foreign companies pay the tariff to our treasury, they make sure their cost is covered by raising the price on the item in question. The idea behind a protective tariff is to protect US jobs. In this case, some of those appliance manufacturing jobs did reappear, but at what cost? Are we all paying 12% more for clean clothes just to get a 1% benefit on manufacturing jobs?

Strange thing about those washing machine tariffs… dryers were exempt. The washers’ twin was not burdened with the extra tax of a tariff, but that didn’t stop companies from raising the price of dryers 12%, as well. Now that burns me up!

Every country is trying to load the system in their favor, but competing tariffs often lead to an off-balance market that just costs consumers. This time around, each new job created by the tariffs cost $817,000. That’s a lot of dirty laundry!