Trade PolicySubmitted by Destination Wealth Management on January 26th, 2018
The announcement this week that tariffs would be levied on imported solar panels and washing machines is one of many steps likely to be implemented by the current administration relative to trade tariffs. The wisdom of this strategy varies depending on one’s political persuasion and economic beliefs. What is clear is that the strategy will change the current status quo. Evidence of that change is LG Electronics’ announcement today that they would increase the price of washing machines headed towards the United States as a reaction to the trade tariffs.
It’s too early to say if this is the beginning of a long-feared trade war, but it is apparent that as a consequence of trade policy decisions, pricing of products will be impacted. We are still currently assessing what the long-term impact might be if trade policies trigger a full-scale trade war. Suffice it to say, this is an important consideration when making investment decisions as it will impact the fortunes of certain companies. CNBC.com reported on LG Electronics decision today and you can read excerpts below.
LG is raising washing machine prices because of Trump's tariff and more manufacturers are likely to follow
LG Electronics told retailers Wednesday to expect price hikes on its washing machines thanks to President Donald Trump's decision to implement steep taxes on the South Korean company's appliances.
"As a result of the trade situation, we will be initiating pricing actions, which will be sent under separate cover shortly," Thomas Yoon, executive vice president at LG, told retail partners in a memo. "We have developed supply-chain plans to help assure a continuous supply of the best quality, most reliable laundry products on the market for your customers."
The Trump administration announced Monday it will impose a 20 percent tariff on the first 1.2 million imported large residential washing machines in the first year and a 50 percent tariff on machines above that number. The protective taxes will dissipate over three years.
The president also introduced tariffs on imported solar panels.
The impending price increases were largely expected across Wall Street, with Goldman Sachs predicting that the protectionist policy could send the cost of a new washing machine 8 percent to 20 percent higher. The tariff also includes a tax on machine parts, which could drive some costs higher for domestic manufacturers as well.
The move is being praised by U.S.-based appliance manufacturer Whirlpool, which has long lobbied for more protective measures against its Asian rivals.
This news demonstrates that one must be aware of current economic and political conditions in today’s rapidly changing world. The future may look similar to the past but it is not necessarily an exact replication and therefore requires analysis. More importantly, it also suggests that adjustments to investment strategy based on current conditions may be wise.
If you have any questions about this information, please let me know. Always happy to answer your questions.