FindingApr 21, 2019

Production, Relocation, and Price Effects of US Trade Policy: The Case of Washing Machines

In 2018, the global tariffs applied to all washers imported to the US increased prices about 12 percent for both washers and dryers, a complementary good not subject to tariffs.

Following the late-2017 announcement of tariffs on all washers imported to the United States, prices increased by about 12 percent in the first half of 2018 compared to a control group of other appliances. In addition, prices for dryers—often purchased in tandem with washing machines—also rose by about 12 percent, even though dryers were not subject to a tariff. On the one hand, these price increases were unsurprising given the tariff announcement. On the other hand, washers had been the subject of multiple import restrictions since 2012 and the price of this ubiquitous household appliance had actually declined over the ensuing years.

The authors’ careful analysis of the washer and dryer markets since 2012, including descriptions of “country-hopping” by manufacturers to avoid tariffs, offers insights for other sectors. Tariffs increase the cost of doing business, which often leads to increased prices for intermediate goods (those used in production) and final goods (those purchased by consumers and businesses). However, tracing the impact of a tariff through the production and delivery of a particular good is difficult; the effort is often inhibited by incomplete or private data that companies hold close. The case of washing machines, though, offers a clear view on the impact of global tariffs for a particular product: consumers are the losers. Indeed, as this research reveals, complementary goods—in this case, dryers—can also be affected. However, when single-product tariffs are applied to individual countries, production may shift to another country and could actually lower production costs and, thus, prices for consumers.