Tags
consumer price index, consumers, CPI, inflation, PCE, personal consumption expenditures index, prices, South Korea, tariffs, Trade, Trump, washing machines, {What's Left of) Our Economy
It’s painfully clear that none of the journalists and offshoring lobby-funded think tank hacks who have parroted the threats by South Korean washing machine makers to raise their U.S. retail prices to offset tariffs imposed by the Trump administration last month has shopped for a washing machine lately. Nor have they looked at the price data for home appliances in America. If they had, they’d recognize that the South Koreans seem to be blowing so much smoke. For no one could possibly look at the U.S. washing machine market either first hand or statistically and conclude that any producer thinks they have much pricing power.
The first-hand evidence? Just check the ads in your daily newspaper. Or take a look at this post from about a year ago offering tips to appliance shoppers. For example, consumers are told that:
>in-store sales people and on-line shopping sites will often sell a machine for less (and “sometimes a lot less” than the advertised price;
>”If you’ve had your eye on an appliance but wish it were just a smidgen cheaper, try putting it in your cart. Then walk away (so to speak). If you leave it there for a few days, a retailer might send you a coupon to entice you to close the deal.”
>”Never be afraid to ask salespeople, cashiers, and store managers if they can do a little better on the price. In fact, Consumer Reports says that nearly all people who haggle over appliances are successful at least once—and save an average $200.”
The statistics? They mock even more cruelly the idea that the tariffs will drive washing machine prices up. Let’s start off with the Federal Reserve’s favorite measure of inflation, the personal consumption expenditures (PCE) index. And as the broadest gauge, let’s use the “core” PCE numbers, which strip out food and energy prices because they’re considered volatile for reasons having little to do with the main determinants of price changes for the rest of the economy.
According to the Commerce Department, which tracks this data, between 2009 (when the current U.S. economic recovery began) and 2016 (the latest figures), core PCE rose by a cumulative 13.10 percent. But for durable goods (the category containing home appliances), prices during this period fell by 13.54 percent. And although there are no statistics for washing machines specifically, prices for “household appliances” plunged by 18 percent over those seven years. These trends don’t exactly scream “Pricing power!”
Moreover, let’s look at what happened with appliances prices after 2013, when the Obama administration imposed tariffs on subsidized and dumped South Korean-brand washing machines from South Korea and Mexico. After having fallen by 2.39 percent the previous year, they fell even faster – by 5.61 percent, 4.96 percent, and 5.03 percent annually over the next three years. And in each instance, the rate of decrease for appliance prices was much steeper than for prices for other durable goods.
The Labor Department’s different sets of inflation data do extend through 2017. They’re grouped under the heading “consumer price index” (CPI), and show that prices for major appliances decreased that year by 2.57 percent, and for appliances generally by 1.03 percent. That year, the CPI for urban consumers less food, energy, and shelter rose by 0.72 percent. And according to this CPI, appliance and major appliance prices have been falling throughout the current recovery, too.
There’s a first time for everything, and so it’s possible that Korean washing machine manufacturers really will carry through on their price increase vows. And of course, since it’s their business, they may know something I don’t. But the first-hand evidence and the data strongly indicate that the tariffs will simply require them to charge closer to fair market value for their goods, and that until much stronger pricing pressures emerge, this fair market value will remain pretty low and could well keep falling.
As a result, there’s a heavy burden of proof not only for taking them at their word, but for continuing to accept blithely the standard assumption that tariffs always hit consumers hardest – or will at all.
