Harley-davidson, blaming EU tariffs, will move some production out of US
Harley-davidson, the U.S. motorcycle manufacturer, said Monday it would shift some production of its iconic bikes overseas to avoid retaliatory tariffs imposed by the European Union in response to President Donald Trump’s trade moves.
The decision, announced in a public filing, is the latest and most high-profile example of how Trump’s trade war is beginning to ripple through the U.S. economy as domestic companies begin struggling with a cascade of tariffs both here and abroad. While Trump says his trade policy is aimed at reviving domestic manufacturing, Harley-davidson’s decision shows how the administration’s moves could have the unintended effect of reducing U.S. employment and economic growth.
Last week, the European Union hit back against Trump’s steel and aluminum tariffs with penalties on $3.2 billion worth of U.S. products, including bourbon, orange juice, playing cards and Harley-davidsons. On Monday, the Wisconsin-based company said European tariffs on its motorcycles had increased to 31 percent from 6 percent and estimated that would add about $2,200 on average to every motorcycle exported from the United States to the bloc.
Rather than pass that cost along, the company said it would shift production to its overseas facilities to avoid the EU tariffs.
“Harley-davidson believes 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,” the company said in the filing.
Harley-davidson’s decision carries huge significance given Trump’s frequent championing of the Wisconsin company as an American icon and a successful U.S. manufacturer that is creating jobs in the United States. Trump hosted Harley-davidson executives at the White House in February 2017, where he called the firm a “true American icon” and thanked it “for building things in America.”
He has publicly criticized other countries, such as India, for imposing tariffs on Harley-davidson and over the weekend threatened to fire back at any country that throws up “artificial” barriers to U.S. goods.
Harley-davidson did not specify how many jobs it might shift to its overseas facilities as it ratchets up European production. The company already produces some bikes and parts at facilities in India, Brazil, Australia and Thailand, and it said the shift should take nine to 18 months to complete. The company sold about 40,000 new motorbikes last year in Europe, equivalent to a sixth of its worldwide sales, making the region its most important market after the United States.
Shares of Harley-davidson fell more than 6 percent in early afternoon trading.
“Increasing international production to alleviate the E.U. tariff burden is not the company’s preference, but represents the only sustainable option to make its motorcycles accessible to customers in the E.U. and maintain a viable business in Europe,” Harley-davidson said in the filing.
Moving production abroad is likely to draw the ire of Trump, who as a presidential candidate publicly assailed companies such as the furnace and air-conditioner maker Carrier, which planned to close a U.S. plant and shift manufacturing operations to Mexico. Trump regularly tells his supporters that U.S. manufacturing is making a major comeback and lavishes praise on companies that build domestically.
But that was before Trump followed through on his plans to levy tariffs on steel and aluminum imports from around the world in an effort, he says, to get other countries to lower their trade barriers. Instead, the opposite has happened, as the European Union, Mexico and Canada respond with their own levies, many of which are aimed at Trump’s political base.
Rep. Paul Ryan, R-wis., the House speaker, said Monday that Harley-davidson’s move was evidence that raising trade barriers is a bad idea.
“This is further proof of the harm from unilateral tariffs,” Ryan said. “The best way to help American workers, consumers and manufacturers is to open new markets for them, not to raise barriers to our own market.”
Other industries have also expressed fear that Trump’s tariffs on foreign steel and aluminum, and retaliation from other countries will be damaging for business.
Mid Continent Nail Corp., a Missouri-based manufacturer of nails, said last week that it would likely lay off half of its employees and that it could go out of business because the higher costs of the steel it imports from Mexico is making its products prohibitively expensive. U.S. whiskey makers have also been fretting about their European sales and some, such as Brown-forman, responded by shipping more of their spirits abroad before the tariffs took effect.
Chad Bown, a senior fellow at the Peterson Institute for International Economics, said he expected more companies to follow Harley-davidson’s lead as they coped with the double whammy of higher production costs stemming from tariffs on theirrawmaterialsandanewtax on exporting to Europe.
“This is incredibly self-defeating,” Bown said. “There may be some increased domestic production of aluminum and steel because of the tariffs, but now there is going to be less motorcycle production in the United States for exports.”
He added: “I think we can expect to see this same kind of activity every time President Trump tries to impose new tariffs.”
Trump has shown no signs that he will let up. In a statement posted on Twitter on Sunday, Trump threatened even more draconian tariffs to come.