Whirlpool Corp trimmed its full-year profit outlook as it booked a large charge on its European operations and said it wouldn’t be able to offset the effect of steel tariffs with higher prices for consumers.
The company said Monday it now expects to pay about $350 million more this year from rising raw-material costs as it faces “a very challenging cost environment.”
A sales drop of 2.2% in North America came as Whirlpool and rivals such as Electrolux AB pushed through price increases to offset the steel tariffs and held back from big discounts during holiday sales, according to analysts. Retail prices of washers and dryers are up 20% in the latest quarter from a year earlier.
Just out of curiosity: If a US steel producer who is barely, if even, scraping by at current prices; and their competition is suddenly forced, at gunpoint, to raise their prices 25%; do you reckon the US producer will somehow not raise their own price as much as they can get away with, given their now more favorable competitive environment?
American manufactured products are renowned for being poor quality -- autos in particular, but I wouldn't touch a Whirlpool product with a barge pole. The only products I can think of that could be considered 'very good' quality are Boeing aircraft and Bourbon.
”Winning” is the new ”Losing” when it comes to trade. Tariffs are a self-inflicted wound as Trump expands his Trade war. Expect more of these examples.
The other side of "free" trade, which of course, is not free.
The solution is developing the productive capacity of our people through education and the trades, which requires govt getting out of education, and most everything else, especially the God business, where they believe they can manipulate the business cycle.
If you put a 25% tariff on imported steel, the price on domestic steel rises 25%, or perhaps just a little less, say 20%. However, if Whirlpool makes the exact same washer overseas, they can save 20-25% on the steel. When you tax manufacturing inputs, domestic manufacturers get crushed. They typically start with a small cost disadvantage with imports, and post-tariff, they have a large cost disadvantage. That's what hit Whirlpool. Now they have three choices: 1. Lose money on every unit they sell, 2. Raise prices, while foreign manufacturer' prices do not go up, or 3. Move production overseas.
You suggest that they should take option 1, but option 3 is the best choice if they want to survive as a company.
whirlpool/maytag products stink. If you get one of their washing machines and do laundry every day, expect to replace it in roughly 3 years. The reason they can't compete has nothing to do with LG and Samsung dumping and everything to do with inferior products. If jobs stay in the US, great. But I'm completely against supporting a poorly run business simply because they're headquartered in the US.
Yes, there will be domestic suppliers inclined to raise price in the wake of tariff induced relief in competition. Will not the invisible hand also stoke new local competition ( i.e. job producers) to meet demand at prices slightly under the new gouging rate? Others, even more aggressive, to harvest even a slight gain over the untariffed pricing?
Of course they will! Voila, we’ll have ourselves a marketplace afterall It will be made up of everyone meeting the same environmental regs, tax rates, etc and drawing from the same labor pool. Transparency achieved.
The last thing a bureaucrat needs in his life is transparency.
A few stories back, i see that Trump offered Europe a ZERO tariff deal.
The prices on domestic steel rise, not because of gouging, but because domestic producers can't make enough steel to meet demand. They raise prices to limit demand, and perhaps to pay the costs to re-open closed mills. As they raise prices, domestic manufacturers reduce their manufacturing, until demand and supply for domestic steel come back in balance. That's how the free market works, and how it's supposed to work. When the government disrupts the free market, it adapts to a new equilibrium. In the case of tariffs on imported steel, the new equilibrium will be more steel production in the US, and less manufacturing in the US.
Unfortunately, since there are about 100 jobs in the US that manufacture things from steel for every job in the making of steel, the new equilibrium will be less overall jobs in the US.
I had the misfortune of buying a late-Production Maytag Neptune washer. When Whirlpool bought the company, the local store had a clearance of the old Neptunes. Since I was using it in a commercial setting, the warranty was void. Within weeks parts were falling off. By 6 months, the machine was no longer operable. I replaced it with a Whirlpool Duet, and it was fine. European companies like Ipso, Electrolux, and Girbau do make better machines, however.
I bought a Maytag washer and dryer for my wife in the mid eighties when first married. It lasted 25 years. It was painfully expensive back then about $1500. My wife after some research decided against getting another high end washer and dryer as she has heard nothing but complaints about all of them especially the foreign made ones. They have so many bells and whistles that breakdown and diminish reliabiity. Also appliance repairmen who did some work on the Maytags once or twice also reiterated that. She bought your basic model washer, american made and because its inexpensive will use it until it breaks and then rinse wash repeat. Cheaper that way. Yes current product quality sucks but its that way for foreign made products also. We have had the same experience replacing a dishwasher, bought the expensive German one and it lasted about as long as the cheap ones we buy now. One good thing about the price increases is that its bringing back inflation. Thats GREAT just what the fed wants. I know I am also euphoric about the $9000 average increase in costs for a new home construction after the Trump lumbar tariffs. WTF I hope this crap gets straightened out soon.
Houses are insanely unaffordable because 1) wages have stagnated due to offshoring of factories and through importing millions of illegal immigrants to lower wages 2) due to banks again lending like they were doing 2003-2007 without worry which raises prices when one can get more and more debt 3)huge property taxes to fund the increases in school costs caused by increased numbers of kids needing more help from those millions of illegal immigrants and also teachers unions blackmailing higher wages while protecting incompetent teachers. 4) due to low rate policies by the fed since people buy houses based on the monthly payment they can afford. 5) due to increased demand for houses brought by the millions of illegal immigrants 6) due to other costs like healthcare and college taking such huge parts of people's budgets.
But hey at least chinese imported crap is cheap at Walmart and one can get a deal on landscaping work from illegal immigrants so no worries.
ML1, you are correct that a tariff on imported items containing steel is critically important if you are going to have a tariff on steel. It is a disaster if you have one without the other, which is exactly why starting there was idiotic. Why not start with tariffs on finished goods in the first place?
The same applies to tariffs on chips. Why not start with tariffs on finished goods containing chips?
"Will not the invisible hand also stoke new local competition ( i.e. job producers) to meet demand at prices slightly under the new gouging rate?"
But, given that this "new, local competition" needed tariffs to be made viable, not at pre tariff prices.... Meaning, Whirlpool still will be stuck buying more expensive steel than their competitors. Leading to higher costs, higher prices, lower sales, less manufacturing employment at Whirlpool. Ditto for all industries where steel is used as an input. And, since all those industries add up to much more workers than steel mills ever will, hence sum total less demand for manufacturing labor. Hence lower manufacturing wages.
It's entirely general, and logically inevitable, that if you put in place barriers that reduce the efficiency at which labor is transformed into economic value (as in, increase any other input cost than local labor itself), each unit of work will create less value. Hence those providing said units of work, will be able to command less of a wage for their work.
Dicking around with government setting, or heavily influencing, relative prices may, at least in the short run, be able to create small groups of "winners." Say, by transferring wages from Whirlpool employees to steel mill employees. But unless your scheme somehow succeeds in making the US, as a whole, more efficient; total wages will decrease. Of course, committed dittoheads have been buying into their favorite Dear Leader's ability to beat a free market at ferreting out efficiency, for as long as there have been Dear Leaders and dittoheads....
Mish, haven't you been talking about demographics shift for over a decade now? Kids can't afford housing. No demand for housing - no demand for appliances.
I think tariffs barely make a dent in this baked in terminal decline.