Let’s Talk Import Tariffs, Expectations, and Empirical Evidence

Import tariffs and potential trade wars have been a hot topic in the media since Trump was elected President. My colleagues and I have written about the topic a number of times on Logistics Viewpoints, as well. However, much of the news propagates recent announcements and often includes an opinion on the subject matter. I thought it would be helpful to take an empirical look at import data surrounding tariff announcements and implementations to determine if there have been any noticeable changes in trade activity.

Residential Washing Machines

There is currently a laundry list of merchandise import categories that have been subject to proposed or enacted tariff increases over the last two years. However, residential washing machines is a product that had a safeguard tariff imposed upon its imports over six months ago. (It’s worth noting that safeguard tariffs are broader in-scope with respect to exporting countries, whereas antidumping duties are focused on specific exporting countries). I found a US Government document noting that the imposed safeguard tariff was limited in scope, with a focus on only a couple of 10-digit harmonized tariff codes. Fortunately, the US International Trade Commission provides complementary online access to the Interactive Tariff and Trade DataWeb, that offers the option to query by harmonized tariff codes.

My Expectation

My expectation, prior to analyzing the washing machine import data, was that import volumes would decrease substantially at or around the time of tariff increases. This expectation was based on the simple economics of tariffs being passed on, to one degree or another, to consumers. Higher prices for imports would likely reduce demand for imports, increase demand for domestic product, and subsequently reduce the volume of washers imported for sale to US consumers.

I accessed two sets of monthly import data (in millions of dollars) for the time frame January 2015 through June 2018 from the US ITC website. The two data sets were Top Loading Washing Machines (8450200040) and Washing Machines, NESOI (8450200080). The data series are graphed in the chart below, along with an aggregate.

A quick visual inspection of the data shows a reduction in the total value of imports starting in January 2018. In fact, the total imports for the first half of 2018 represents a 35 percent reduction from the average H1 imports for the years 2015-2018. This is certainly a significant reduction that was likely brought about by the tariff increase (other factors, such as domestic production may have exerted influence as well). But the most notable trend in the data is the large spike in imports at the end of 2017, and a similar but less substantial spike in April 2016.

It’s Importer/Exporter Expectations That Matter

I decided to check the timeline of regulatory activity by the US Government. I overlaid what I consider to be the most relevant dates on a copy of the same chart below. I read a number of reports about the timeline of antidumping concerns related to large residential washers and found that this is an ongoing process with a long history. In fact, Whirlpool, the filer of the safeguard petition, states in a May 2017 press release, 

“Today Whirlpool Corporation is filing a safeguard petition with the U.S. International Trade Commission as the company’s next step in addressing the ongoing efforts of Samsung and LG to evade U.S. trade laws….Earlier this year, the U.S. Government issued a new antidumping order against Samsung and LG in China. But several months before the government issued its ruling, Samsung and LG stockpiled product in the United States …”

And in the included safeguard petition timeline, the press release states that the President could issue a remedy determination at the end of 2017. Perhaps more importantly, on November 21, 2017, the USITC announced its remedy recommendations of tariff-rate quotas on imported large residential washers for a period of 3 years.

Notice that the initial surge of imports appears to be a reaction to Whirlpool’s petition filing, possibly a “stockpiling” effort, similar to that which Whirlpool mentions above. In contrast, the surge of imports in late 2017 appears to be in expectation of the tariff rate quotas that were to be imposed at the beginning of 2018. The remedy recommendations by the USITC may have been perceived as a sign of likelihood that the President would indeed impose tariff-rate quotas. I find the timing and extent of increases in imports to be especially interesting. It certainly implies that importers stockpiled product prior to the dates of expected tariff increases. Furthermore, it shows that overseas production may have been increased or shipments were diverted to increase inventory in the US.

Lessons Learned

• Modern supply chains are extremely agile.
• Tariffs can exert substantial influence on sourcing and production decisions
• Expectations play a strong role in international business, as they do in stock market movements.
• Cause and effect can be difficult to determine in a time-series analysis, especially when the effects from expectations precede events.