Worries that President Donald J. Trump might base his economic plans on protectionism have not come to fruition, but when foreign firms contravene norms of fair and free trade, American workers and citizens are hurt. If the Trump Administration wants voters to see that the President’s pledge to put “America First,” it must stop foreign firms from engaging in predatory, anti-competitive behavior that violates international trade law.
Were the administration to enact the International Trade Centre’s recent policy recommendations in relations to foreign firms engaging in the predatory behavior, there would be a strong incentive for South Korean firms like Samsung and LG to stop their gaming of the system to the detriment of U.S. workers and consumers. In addition, doing so removes a disincentive foreign firms have to invest in American manufacturing. Not only would ITC’s policy recommendations enforce our trade agreements and restore fairness to the market, but it may also lead to the production of more jobs for American workers.
The problem with the actions of foreign firms like Samsung and LG is simple: The South Korean government subsidizes them with cash. The companies pocket the money and apply it to its washing machines and other products it sells in the U.S. If you are Samsung and make washing machines, that $155 million pile of cash you receive allows you to sell your product below what it cost for you to make.
More importantly, the cash delivered to Samsung by South Korea’s government agents allow those washing machines to be sold at a cheaper price than the American-made products sitting next to them in the store aisles. If that sounds like cheating, you are correct. If it strikes you that cash payments like this must be illegal, you are also correct. This is why the President should apply the ITC’s recommendations, and do so promptly. A decision is due early this year, and the President should not delay in implementing the ITC’s recommendation.
If the government of South Korea wishes to subsidize washing machines, it is free to get out of its trade agreements and do so. Sadly, South Korea is trying to have its cake and eat it, too. If the President does not take action in this case, then there will be two signals sent: One to America and one to the rest of the world. To Americans, it may be interpreted as having a President who promised to put American workers first but who won’t lift a finger for them once he is in office. The second message that the world will hear is that America won’t defend its interests or litigate when trade violators cheat.
As I wrote last fall, Samsung and LG recently threatened they won’t open plants in Tennessee and South Carolina if they are held accountable for their cheating. Both companies could have opened these plants in 2007, when they had only one percent of the U.S. market, or even in 2012 when they lost their first U.S. trade case. Samsung and LG were obviously looking for new manufacturing locations at those times but skipped the U.S., the very market they are trying to dominate.
There is nothing in the rules that says a company that is dumping product into the U.S. market is prohibited from building a plant in the U.S. market. Based on their track record, there is little assurance that these companies are not simply playing for time, assembling foreign-made parts, and then moving operations to yet another country as they have done so many times before. In short, this looks like a head fake.
While it is encouraging that ground is being broken for new plants, Americans shouldn’t have to listen to threats from known trade violators. The South Korean government says that finding their companies guilty of violating trade laws would hurt those companies. No doubt. Just as a team that gets caught cheating on the field is harmed by being caught, companies caught violating the trade agreements they sign on to lose their illegally obtained competitive edge.
If South Korea wants to avoid such adverse action, there is action it can take today to stop all of this in its tracks: Comply with trade laws it signed. Without their compliance, President Trump is right to stand up for American workers.
Michael James Barton is the founder of a consulting firm, Hyatt Solutions. He worked on trade issues on Capitol Hill and served at the Department of Defense and the Homeland Security Council during the George W. Bush administration. He can be reached at Scheduling@HyattSolutions.com and you can follow him on Twitter at @MichaelJames357.