It’s no secret that I’m a critic of Trump’s protectionism. He doesn’t understand the benefits of trade, misinterprets trade data, and – to coin a phrase – he’s “making cronyism great again.”
But, as shown in this interview, even I’m shocked that he’s “blaming the victim” by going after Harley-Davidson.
I’m disappointed, though, that I only made part of the argument.
Harley-Davidson is being hurt by government because Trump’s steel and aluminum tariffs have raised the prices of inputs. But the company also is being hurt because other countries have responded to Trump’s protectionism with tariffs that will penalize the company.
Here’s some background on the story, as reported by CNN.
President Donald Trump said it’s “great” that consumers might boycott Harley-Davidson if it moves some motorcycle production overseas. …Trump’s remark came after the President hosted “Bikers for Trump” supporters at his golf club in Bedminister, New Jersey, over the weekend. …Tensions between the administration and Harley-Davidson have brewed for months. It started when Trump imposed hefty tariffs on steel and aluminum imports earlier this year in an effort to bolster domestic manufacturing. The European Union responded by pledging to raise tariffs on a list of goods that are imported from the United States, including Harley motorcycles. …Harley said it stands to lose as much as $100 million a year, and the company pledged to shift some of its production abroad so that it could avoid the added tariffs on motorcycles sold in the EU. …moving more production overseas was the “only sustainable option” in the face of a trade war.
Not that this is a sudden revelation.
The U.K.-based Financial Times reported back in June that the company was put in a bad position because Trump’s tariffs led to retaliatory tariffs from the European Union.
…Harley-Davidson announced it would move some manufacturing out of the US to avoid EU tariffs and Brussels prepared further retaliatory measures in case of new White House duties. The motorcycle maker is the first US manufacturer to scale down domestic production in response to the EU tariffs, which were imposed on Friday against $3.3bn in American imports as retaliation for US steel and aluminium duties. Harley-Davidson’s decision illustrates why many pro-trade members of President Donald Trump’s own Republican party have raised concerns about the potential economic consequences of the multiple fronts he has opened in his trade offensive.
Kevin Williamson, writing for National Review, explained what’s really happening.
Harley-Davidson already operates facilities in Brazil, India, and Australia, and it has plans for a factory in Thailand. Avoiding protectionist measures drives some of that, but so do other factors, including proximity to customers — which is why Mercedes-Benz manufactures SUVs in the United States, where most of them are sold. Indians buy nearly 17 million motorcycles and scooters a year, and Harley-Davidson covets a larger share of that market. …its executives calculate that the Trump administration’s anti-trade policies will cost it as much as $100 million a year in the EU market alone. …What is Harley-Davidson supposed to do? Lose a few hundred million dollars while it waits for the Trump administration to get it right on trade? Because that day probably is not coming.
I’m not being a Trump basher, by the way. I noted in the interview that he’s also pushed through some policies that are good for both companies and competitiveness, such as targeted deregulation and lower tax rates.
But, as also noted in this Washington Post column, what’s frustrating is that the harm caused by Trump’s protectionism will offset the benefits of those good policies.
President Trump’s top economist defended the White House’s increasingly aggressive trade policies Tuesday, calling Harley-Davidson’s decision to move some operations overseas an exception to a broader trend of renewed corporate investment within the United States. Kevin Hassett, chairman of the Council of Economic Advisers, said foreign direct investment on American soil “has skyrocketed” in the year’s first quarter, a trend he attributed to a cut in the corporate tax rate that Trump signed into law last year. …Former White House economic adviser Gary Cohn, who resigned shortly after Trump announced the tariffs, cautioned earlier this month that a trade war could wipe out the economic gains of the GOP tax law.
Let’s close by highlighting the oft-overlooked fact that the retaliatory tariffs against Harley-Davidson are not trivial.
Here are some excerpts from a Wall Street Journal editorial.
The company considers the EU a “critical market,” and last year it sold nearly 40,000 bikes to European consumers. But in retaliation for Mr. Trump’s steel and aluminum tariffs, the European Union raised its tax on American-exported Harleys to 31% from 6%, effective last Friday. That amounts to a $2,200 tax on each motorcycle exported from the U.S. to the EU. …Harley said “the tremendous cost increase, if passed on to its dealers and retail customers, would have an immediate and lasting detrimental impact to its business in the region, reducing customer access to Harley-Davidson products and negatively impacting the sustainability of its dealers’ businesses.” Translation for Mr. Trump: Unlike real estate, cars and motorcycles are a global market.
All of which underscores the main point from the interview, Harley-Davidson is the victim.
I mentioned in the interview that some people think Trump is playing a clever game to force other countries to lower trade barriers. Since other nations generally have higher trade barriers than the United States, he’s right to have that as a goal. Assuming, of course, that really is his goal. I’m skeptical, but would love to be proved wrong.
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Whatever one’s view about tariffs, the lay-offs are beginning and Americans are losing their jobs. To date, they are small numbers – thankfully – but it’s early days still so for those who think this is the best way to sort out countries like China, sit back, wait and watch.
Add to that the concerns from GM and Ford.
I seriously hope that Trump does not mess with the auto business. The pain here in the US, will be very significant. Consumers are already facing higher prices.
The problems will not go away quickly. Trump has to be in this for the long haul and will be unable to pull back. It is not a case of “short term pain” as he says.
Mr. Mitchell, I am not sure why you are skeptical that the presidents goal is to lower tariffs everywhere. China has a long term goal to dominate the US car industry. If I were them, I would too. How are they doing that, not by selling their cars here but in covert ways. In 2012 China lured GM to open a major research center there. They have been buying many parts suppliers here in the US like Johnson Controls automotive operations. It is a war, where parts are the bullets. Look what happened to Beretta, they were lured into Brazil with a military contract, forced to build a plant there, contracted ended and what happened to the plant and all the tooling, they make Brazilian company owned Taurus firearms. Bottom line, the walls are up and the fishing lures are out to get our companies along with our manufacturing plants to leave here. https://www.forbes.com/sites/frankminiter/2015/11/19/how-a-gun-maker-got-off-the-canvas-to-become-an-overnight-market-leader/
What V-MAX says about Harley is true for many products these days. Specialization and division of labor have created very complex global supply chains. Boeing and Apple are two other good examples. Design here, make Part A here and Part B there, then send them over here for assembly. Parts, sub-components, and components criss-cross the globe. This is why the trade statistics don’t really tell the full story. And why waging ‘trade wars’ is fraught with unintended consequences.
By the way, these complex global supply chains are mostly beneficial. Specialization and arranging the most efficient supply chain ultimately raises our standard of living.
Here is the link to the US Census, every country is in alphabetical order. Less alternative solutions, it is not a clever game, it is reality. https://www.census.gov/foreign-trade/balance/index.html
it’s an urban myth that modern Harley Davidson motorcycles are “manufactured” in the united states… they are assembled here from components that are made all over the world… the best figure I could come up with is approximately 60-70% of the motorcycle is actually fabricated in the United States… with the balance made overseas… that doesn’t change the urban myth… a lot of bikers take comfort in the belief that their scooters are 100% the product of American ingenuity and labor… it’s not the case for Harley or for other American companies that sell motorcycles here… sadly… the Harley myth is just another piece of Americana that’s fading into the past… demographics… and changing market conditions must be taken into account… and sound reality-based decisions made if the company is to survive and prosper… I love Harley Davidson… and I don’t want any person or act to do the company harm… I hope the boycott doesn’t stick… these bikes have transported troops in times of war… and given motorcycle riders untold hours of pleasure in the wind…
HD is 115 years old… I would like to see em go at least another 115 years……
In my opinion, you are putting the cart before the horse. Trump did not create the position we are in right now. Whether there are formal trade tariff’s or political pressure limiting out access to foreign markets, the numbers show he is right. Whether it is our neighboring NAFTA countries, Europe or China, our trade balance is in the negative “Big time.” Don’t believe me, go to the US Census Data. What is Harley doing, they are doing exactly what Europe and the other countries manipulated them to do, movin production out of America, Trained seals, perhaps. Trump is trying to correct that the best way he knows possible, retaliatory tariffs. Do you suggest taking it to the WTO? You make it sound like he is placing an “Exit Tax.” Wait, that was Hillary’s idea! https://www.breitbart.com/video/2016/03/30/hillary-threatens-to-slap-a-new-exit-tax-on-companies-leaving-u-s/