Will Trump tariffs threaten inward investment to US?

The administration of US president Donald Trump has not revealed the full details of its plans to raise tariffs on steel by 25% and on aluminium by 10%, but the little that was announced in early March was enough for one company to delay an investment in the US until further information becomes available.

That company is the Swedish home appliance manufacturer Electrolux. Its investment is a $250m expansion of an existing plan in Springfield, Tennessee. Reuters reported the company’s decision on March 2, shortly after the promise of new tariffs was announced by the Trump administration.

Spokespeople for the manufacturer told reporters that the decision by the US to apply tariffs will give foreign appliance manufacturers a competitive edge in the market as it will raise the cost of US carbon steel – which is all the company uses in its US manufacturing operations – significantly. The company said it will wait for the release of the actual plan, which is expected to come out shortly, before it makes a final decision.

It remains to be seen whether despite the bare bones outline of the plan – to say nothing of Mr Trump’s Tweet that “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win” – the final version may be something with which companies such as Electrolux can live. On March 4, Peter Navarro, director of the White House National Trade Council, told CNN that some businesses may be granted exemptions. “There will be an exemption procedure for particular cases where we need to have exemptions, so that business can move forward,” he said.

Electrolux has a sizeable footprint in the US and it is conceivable that the tariffs that have been proposed could further curtail its investment in the country. Its immediate plans, which the company put on hold, were to modernise and expand its Springfield plant. But that $250m expansion is part of a larger, multi-state $500m investment that Electrolux announced at the beginning of 2018, which includes another $250m investment at an existing plant in Anderson, South Carolina. However, construction has already started at the plant so it may not be as easy to pull back on its original plan.

To some extent this is familiar ground for Electrolux, which was slapped with a significantly increased preliminary tariff in the US of 72.41% in November 2017 for its washing machines that were manufactured in Mexico and imported into the US between February 2016 and January 2017 – for a one-time cost to the company of $70m. Electrolux promised to “vigorously” contest the decision.

This was not, it should be noted, part of the tariffs imposed on washing machines by the Trump administration at the start of 2018. Rather, it stemmed from an anti-dumping order and tariff rate imposed by the US Department of Commerce in 2012. Each year since, Electrolux has requested a review of the rate in arrears based on data it submits for the period, with the review determining the tariff to be imposed. According to an explanation by Electrolux, the most recent rate determined by the Department of Commerce was 3.67% for February 2015 to January 2016. It was the next review that led to the imposition of a 72.41% tariff when the Department of Commerce refused to accept Electrolux’s data submission because it alleged it was not timely, the manufacturer said.

However, the tariffs the Trump administration appears poised to impose could alter market competitiveness, global supply chains – and as Electrolux’s decision regarding its Springfield plant makes clear – direct investment in the US.