Trade Cases

Section 232 Tariffs Force Harley-Davidson Overseas

Written by Sandy Williams

Section 232 steel and aluminum tariffs are causing collateral damage in the case of one high profile White House-favored manufacturer. Harley-Davidson announced Monday that because of EU tariffs in response to U.S.-imposed steel and aluminum tariffs, the company will shift production of motorcycles for EU destinations from the United States to international facilities.

HarleyEmblemEU tariffs on motorcycles exported from the U.S. have increased from 6.0 percent 31 percent, adding an average cost of $2,200 per motorcycle, said Harley-Davidson. On a full-year basis, the company estimates the aggregate annual impact of the EU tariffs to be approximately $90 million to $100 million.

In an SEC filing, the company wrote, “Harley-Davidson believes the tremendous cost increase, if passed onto 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.”

“Therefore, Harley-Davidson will not raise its manufacturer’s suggested retail prices or wholesale prices to its dealers to cover the costs of the retaliatory tariffs. In the near-term, the company will bear the significant impact resulting from these tariffs, and the company estimates the incremental cost for the remainder of 2018 to be approximately $30 million to $45 million.”

Revenue generated by EU sales is second only to the United States, said Harley-Davidson. In 2017, 40,000 new Harley-Davidson bikes were sold in Europe.

Said the company, “Increasing international production to alleviate the EU tariff burden is not the company’s preference, but represents the only sustainable option to make its motorcycles accessible to customers in the EU and maintain a viable business in Europe.”

The company added, “Harley-Davidson’s purpose is to fulfill dreams of personal freedom for customers who live in the European Union and across the world, and the company remains fully engaged with government officials in both the U.S. and the EU helping to find sustainable solutions to trade issues and rescind all tariffs that restrict free and fair trade.”

In February 2017, President Trump called Harley-Davidson an “American Icon” and thanked the company for “building things in America.” He used the motorcycle as an example of trade barriers imposed by other nations, specifically a 100 percent tariff by India on imports of Harley-Davidson bikes.

On Tuesday, Trump accused Harley-Davidson of using tariffs as an excuse to offshore jobs to a new plant in Thailand. In a tweet, the president said, “A Harley-Davidson should never be built in another country-never! Their employees and customers are already very angry at them. If they move, watch, it will be the beginning of the end – they surrendered, they quit! The Aura will be gone and they will be taxed like never before!”

Trump added, “Harley must know that they won’t be able to sell back into U.S. without paying a big tax!”

House speaker Paul Ryan responded to the Harley announcement saying, “This is further proof of the harm from unilateral tariffs. 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.” Harley-Davidson in based in Wisconsin, where Trump won the electoral votes and is represented in Congress by Paul Ryan.

Chad Bown, senior fellow at the Peterson Institute for International Economics, told the New York Times that more companies are likely to follow Harley-Davidson’s lead in avoiding tariffs.

“This is incredibly self-defeating,” said Bown. “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 that President Trump tries to impose new tariffs.”

Harley-Davidson did not specify which U.S. assembly plants would be hit by the shift in production, only saying that ramping up production overseas will take nine to 18 months to be fully complete. The company plans to reveal further details on the financial implications and resulting actions regarding the EU tariffs during its July 24 second-quarter earnings call.

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