The Economist February 13th 2021 Finance & economics 73ence, says Elena Carletti of Bocconi Uni-
versity, who also sits on UniCredit’s board.
In America Wells Fargo is the only big bank
subject to such rules. Language can create
barriers, too. After falling out with Jean
Pierre Mustier, its French boss who is due
to step down in April, UniCredit’s board is
said to have favoured Italian-speakers.
There is hope, however. Industry veter-
ans praise a class of bankers climbing up
the ranks, including Slawomir Krupa (head
of Société Générale’s markets unit), Chris-
tian Meissner (Credit Suisse’s new wealth-
management chief ) and Nicolas Namias
(the new boss of Natixis, an investment
bank). Headhunters, meanwhile, are
grooming bright executives in adjacent in-
dustries, such as payments or insurance.
Whether they make it to the top or not
largely depends on banks’ boards, many of
which pay lip service to transformation but
plump for boring candidates. That partly
reflects their own staid composition. Ca-
reer bankers with little tech nous often
dominate, even though regulators do not
necessarily require that non-executive di-
rectors have banking expertise. To cure ail-
ing banks, boards too need new blood. Trade policy in America
Rinse and repeat
A
merican washing-machinemakers
received a parting gift from President
Donald Trump. Days before leaving office,
he extended tariffs on imported machines
by two years. The move was a victory for
Whirlpool, an appliance-maker that has
sought protection for nearly a decade. The
saga is a case study of the impact of protec-
tionism on competition at home.
American businesses can ask the gov-
ernment for three types of protection from
foreign rivals: anti-dumping duties, if im-
ports are being sold below cost; counter-
vailing duties, if foreign competition is
subsidised; or safeguard tariffs, if imports
are surging. Petitions succeed around 60%
of the time; in 2016 just over 7% of Ameri-
ca’s product lines were affected by a tem-
porary trade barrier. (That compares with
about 4% in the European Union.)
When Whirlpool first sought help in
2011, it accused its South Korean competi-
tors, Samsung and lg, of selling at prices
that were too low. (Its rivals said its failure
to innovate was the problem.) The United
States International Trade Commission
(usitc), which follows trade-remedy law
written to protect producers, not consum-
ers, found for Whirlpool. That led to tariffs
of up to 82% on some washing machines
from South Korea and Mexico (where Sam-
sung had a factory).
Only six years before that, Whirlpool
had used the promise of competition from
Samsung and lg to justify consolidation at
home. Trustbusters had been suspicious of
its acquisition of Maytag, an American ri-
val, which united more than 70% of do-
mestic production of household washing
machines. But, partly because they were
assured of stiff foreign competition, they
let the deal go ahead. William Kovacic,
then a member of the Federal Trade Com-
mission, was so peeved by the case that he
now argues that merger approvals should
require companies to waive their right to
seek tariff protection.
But the duties Whirlpool had secured
were easy to dodge. When Samsung and lg
started sending machines from their facto-
ries in China to America, Whirlpool asked
the usitcto hit imports from there, too.
Accused of undercutting again, the South
Korean firms protested that “bundled pric-
ing” distorted the facts. Washing machines
often looked like they were sold at low
margins, but in fact were being bundled to-
gether with driers, which were sold at high
margins. When seen as an integrated unit,
an apparently low-return washing-ma-chine business could in fact be making ad-
equate profits. But the commission ruled
in favour of Whirlpool again.
The source of imports had already
changed, though—to Thailand and Viet-
nam. So, rather than continue with the
game of whack-a-mole, in 2017 Whirlpool
made a bolder request: for a safeguard tar-
iff, which hits imports whatever their
source. (It is also temporary, to give domes-
tic firms time to become competitive.) The
usitcrecommended tariffs of 20%, rising
to 50% above a quota of 1.2m units in the
first year, with the protection fading over
three years. Presidents can veto such re-
quests, but Mr Trump did not.
The new restrictions were implement-
ed in February 2018. As the law intended,
imports fell, and American production
rose. According to a study by Aaron Flaaen
of the Federal Reserve and Ali Hortaçsu and
Felix Tintelnot of the University of Chica-
go, retail prices of washing machines also
rose, by 12%—with those of dryers rising in
step. Whirlpool made some investments,
including in a new training centre in
Clyde, Ohio. A review of the tariffs in 2019
found that its profitability increased.
Yet Whirlpool came back for more. In
November last year its lawyers complained
that the tariff was meant to give it three fat
years of profits to recover from the harm
caused by imports. But Samsung and lg
had brought in machines before the tariff
came in, dampening its effect. Then came
covid-19. Had the usitcknown what mar-
ket conditions would be, Whirlpool’s law-
yers argued, it would surely have recom-
mended greater protection.
By then Samsung andlghad opened
factories in America. (How much of this,
and the resulting jobs, reflects the tariff is
up for debate, but it may have speeded up
the decision to set up shop in America.)
The Korean firms argued that they were
now part of the domestic industry—and
did not need tariffs. They pointed out that
the domestic industry was clearly thriving:
around 80% of washing machines bought
in America were now home-made. Still,
the usitcdecided that, without an exten-
sion, cheap imports would flood in. Mr
Trump did not disagree, so the tariffs will
remain until 2023. (Whirlpool says the de-
cision reflects its efforts to ensure fair
trade and to protect employees.)
The result will be close to a decade of
protection, arguably at the cost of custom-
ers’ wallets. But Whirlpool has little re-
course for protection left, and now faces
stiff competition at home. In November a
representative of lgsaid its new factory in
Tennessee had in some cases shrunk the
gap between order and delivery from 12
weeks to a few days. Canny use of tariffs
might help some producers some of the
time. But competition cannot be avoided
for ever. WASHINGTON, DC
What washing machines tell you about the links between tariffs and competition
Heavy-duty machines