Whirlpool, a Tariff Supporter, Now a Tariff Victim: Dear Whirlpool

Mish

Whirlpool reports an unexpected quarterly loss and also lowers guidance. A housing slowdown and tariffs are in play.

Washing-machine maker Whirlpool reports a quarterly loss, a 3.9% decline in revenue, and its shares slid 8% after hours.

That's not all: The Wall Street Journal reports Whirpool Cut Its Profit Outlook for the Year.

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.

Whirlpool supported import tariffs on appliances produced overseas but much of the benefit was countered by the effect of levies on steel imports introduced earlier this year.

Dear Whirlpool

Dear Whirlpool, the next time you support tariffs think about what you ask. Moreover, think about something the WSJ failed to mention: Tapped out consumers and a slumping housing market.

Houses are already insanely unaffordable and you supported tariffs to protect your uncompetitiveness.

Care to try again?

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Mike "Mish" Shedlock

Comments (22)
No. 1-22
Carl_R
Carl_R

With the tariffs on raw materials, the only way Whirlpool can keep their raw materials costs under control is to move manufacturing overseas.

Snow_Dog
Snow_Dog

...or source materials locally and have their purchases support local labor whilst those laborers work more to someday become home buyers who can buy Whirlpool products, etc.

2banana
2banana

The housing bubble has popped. The long hard road down is coming.

Why are washer and dryer prices up 20%? Is that all from tariffs on imported steel? I highly doubt it. The steel used could be made anywhere. Pension costs? Poor management? Insane unions?

Sounds like a convenient excuse.

BornInZion
BornInZion

"Houses are already insanely affordable" // Perhaps you meant "unaffordable"?

Mike Mish Shedlock
Mike Mish Shedlock

Editor

Yes, unaffordable - thanks - corrected

Stuki
Stuki

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?

TheLege
TheLege
(deleted message)

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.

Realist
Realist

”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.

Blacklisted
Blacklisted

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.

Until We Understand the Real Wealth of a Nation Progress Cannot be Achieved When We Try to Eliminate the Business Cycle | Armstrong Economics
Until We Understand the Real Wealth of a Nation Progress Cannot be Achieved When We Try to Eliminate the Business Cycle | Armstrong Economics

QUESTION: Mr. Armstrong; Do you have any comment on the latest excuse for the decline in gold is because Trump is forcing it down so he can buy it up and move to gold-backed bonds like Nevada? This is the latest coming from the fringe which just seems so unrealistic any more. I am not sure why these people ignore the past. Thank you; PF ANSWER: The entire issue at its core is this endless desire to eliminate the business cycle. They pitch that ONLY gold is money and if we return to a gold standard that every evil will be cured. They believe that money must be "tangible" and as such, they fail completely to comprehend the true nature of the economy. If ONLY gold was money, then how did Germany, Japan, and China rise to the economic giants without gold and Russia has floundered ever since 1991 when they had the gold, oil, and diamonds? Kondratieff's long-wave study observed that the rise and fall of the business cycle existed during the 19th & 20th centuries when the world was on a gold standard. The existence of a gold standard FAILED to eliminate the business cycle and it proved that a "tangible" based monetary system did not make money more valuable than a paper money system. Ironically, ever since 1776, we are still arguing over what is money? Should it be any commodity, paper, some fixed-exchange rate, or is the real wealth of a nation its people and their total capacity to produce? Is this why skilled labor forces and education raise the standard of living of a country than merely farming to grow food to sustain yourself? Julius Caesar said: Divide and Conquer. If the people come together and form interconnected economic bonds, the economy expands because the synergy of everyone collectively is greater than the individual sum of the parts. Changing the monetary system to one back by gold has NEVER eliminated the business cycle. So this idea that a gold-backed bond will somehow retain its value constantly is like believing in Santa Claus of the promises made by every politician when running for office. The true Wealth of a Nation was observed and expressed by Adam Smith in 1776 and nobody has been able to demonstrate anything to the contrary. "Money" is by no means some tangible object or a commodity regardless if it has been gold, paper, cattle, slaves, or seashells. The true WEALTH OF A NATION is its people! China, Germany, and Japan lacked the natural resources but their people were its wealth and they produced manufactured goods which they sold to the world and were paid for in return. Russia had the natural resources but it moved from communism to an oligarchy. You cannot open a restaurant in Moscow and compete for you will be dead. A country can have tremendous natural resources like Russia, but unless its people are free to develop the economy in their own self-interest, they will never rise to the top ten list of nations. All the gold, oil, and diamonds of Russia did not propell it to the number one economy. There are plenty of third world nations with natural resources that are being mined yet they remain as third world nations because their people are not educated and their is no domestic economic synergy among the people. Spain was the classic example. They discovered all this gold and silver in South America. They exploited it, brought it back to Europe, but NEVER developed their own economy no less America. They spend the money lavishly. Unloading the ships was a job for imported labor because it was beneath them. The gold joke was that as Spain got rich, everyone else got richer. They used Frenchmen to unload the ships while the Spanish drank and partied. Indeed, the wealth discovered by Spain even created what became as the United States dollar. The Spanish piece of 8 (8 reals) became the standard coin of the world. Even China adopted the silver standard based upon Spanish pillar dollars. The two pillars represented the gateway to the Atlantic from the Mediterranean. The problem for Spain simple. They lived lavishly and paid everyone else to work. Consequently, they failed to develop their own domestic economy. Spain could not wait to spend its money coming in on the next fleet. When fleets sank in hurricanes, they could not pay their debts. Spain became a serial defaulter moving from the richest nation in Europe to a 3rd world status. They defaulted in 1557, 1570, 1575, 1596, 1607, and 1647. Germany is the fifth largest economy in the world and certainly number one in Europe. Its economic model is based upon exports, which was why it supported the euro to eliminate FX risk in Europe so it could sell more product. Exports are driven by Germany's backbone of highly innovative small and medium-sized enterprises (SMEs). These constitute 99.6% of all companies that employ almost 60% of all employees in Germany. Many of these SMEs are world market leaders in their respective niche segments and actually support the larger internationally leading companies - such as Bayer, BASF, Daimler, Volkswagen, and Siemens to name but a few - they make up Germany's manufacturing industrial base. They have focused their economy on an export-based model in the old tradition of mercantilism rather than domestically focused consumption. Therefore, you will have to date found jobs for qualified engineers (mechanical, automotive, electrical and building) at the top of the list of job shortages with IT specialists, health and social workers coming in second generally. The German economy relies upon the euro to reduce FX risk to increase its exports, but it really does not matter what the currency is based upon as long as it is fixed or the same single currency. Eliminate the euro and the risk will return and exports will decline within the EU. So this latest excuse for the decline in gold is just absurd. They are unwilling to look at their old theories so they spin wild tales to justify being wrong. Trump is by no means forcing metals to decline so the US government can buy it and issue gold-backed bonds like Nevada. Assemblyman Jim Marchant announced the Nevada Gold and Silver Enabling Act on July 2, 2018. He claimed that gold-backed bonds would avert financial armageddon, retire debt, ensure all creditors are paid in full in nominal terms and begin the process of gold circulation. Here is the argument they use: "The Federal Reserve has a policy of two percent per annum debasement of the US dollar. Other central banks around the world have similar targets, for example, both the Bank of England and the European Central Bank set their targets at two percent. Creditors should prefer gold assets over dollar-, pound, and euro-denominated assets because gold is not subject to this debasement. The 10-year Treasury yields 2.9% as I write this. Assuming that the Fed hits its target without overshooting it, then the central bank is robbing the investor of most of their return." The entire argument assumes that somehow a gold-backed bond will eliminate inflation. History confirms that is just nuts. The very first coins ever issued demonstrated that inflation caused by war resulted in the first debasement of the currency. History does NOT support this wild idea that a gold-backed bond will eliminate inflation and the business cycle. That is just completely false!!!!!!!!!!! Even if we assumed that was correct, you can see what this type of policy would create by creating a money supply that was fixed - it is called deflation. This is what has driven unemployment among the youth in Southern Europe to 60%. Germany has been focused on eliminating inflation because of their experience during the 1920s. This policy of austerity cripples economic growth and will only lead to revolution and civil unrest. Likewise, Germany is living in a dream world where they do not understand their own economic history. Gold-backed debt has existed for hundreds of years. There was still the business cycle, periods of inflation and deflation, as well as revolutions. This theory that somehow a gold-backed bond will eliminate the business cycle is actually the same goal of Karl Marx and John Maynard Keynes. Marx proposed Communism and the elimination of all private tangible wealth would produce the perfect world. That failed. Keynes argued that the government could manage the economy by focusing on demand and raise or lower interest rates to also eliminate the business cycle. That failed and even Paul Volcker came out and called it the Rediscovery of the Business Cycle back in 1978. John Maynard Keynes was at least honest enough to comment before he died that he had been wrong. Smith's observation of how the economy works remains the only answer. What all of these theories have in common is the assumption that to create money with a tangible value and eliminate the business cycle, the answer lies in manipulating DEMAND side economics rather than the SUPPLY side. In other words, we eliminate all tangible assets or we manipulate interest rates and the supply of money in hopes of influencing the DEMAND of the people. Gold-backed bonds will no more eliminate the business cycle than any other attempt to date. Not even Larry Summer's NEGATIVE INTEREST rate policy has been successful in stimulating the economy by compelling people to spend rather than save. His theory has merely created the next crisis as pension funds, who needed 8% interest to remain solvent, cannot function with historically low rates of interest and will default bringing socialism into crisis. You must always ask: What is the end goal? It is always the same - ELIMINATE THE BUSINESS CYCLE.

Carl_R
Carl_R

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.

KidHorn
KidHorn

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.

Snow_Dog
Snow_Dog

“ as much as they can get away with,”

That’s the key.

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.

RonJ
RonJ

A few stories back, i see that Trump offered Europe a ZERO tariff deal.

Carl_R
Carl_R

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.

Carl_R
Carl_R

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.

hmk
hmk

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.

ML1
ML1

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.

Stuki
Stuki

"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....

Metronome
Metronome

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.


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