Noise Vibration and Harshness

Trump’s Tariffs Could Have Unintended Consequences

Casualties of war

Early last year, two uniquely American,self-proclaimed super patriots met at a much-publicized White House event for a good-natured discussion of U.S. trade policy.

In this corner: Donald Trump, the fast-talking, hard-nosed businessman and president of the United States. In the other: rough and ready Harley-Davidson, maker of the quintessential American motorcycle and one of the world’s most iconic brands. Its message, emblazoned on the company’s Facebook page: “115 Years of Freedom.”

In his remarks during the ceremony held shortly after his inauguration, the president was effusive in his praise of the venerable Wisconsin firm: “What a great, great group of people, and what a fantastic job you do.”

Now the Trump and Harley brands are back in the news, together again, only this time because—just like in reality TV—now they’re at war.

Why? Because Harley is pointing to the Trump administration’s trade policies as justification for its recent decision to move more of its production offshore, almost certainly leading to American job losses in the process. Harley claims the move is necessary in order to remain profitable in the wake of 31 percent counter-tariffs just levied by the European Union on motorcycles and certain other American exports, such as bourbon. Stiff and punitive, they were retaliation for U.S. tariffs that have dramatically raised the prices of imported steel and aluminum, among other new levies being bruited by our trade warrior in chief, including ones on imported cars and car parts. As I write, this is giving pretty much the entire automobile industry conniptions, for understandable reasons.

Like it or not, the global auto industry (like most industries) relies on supply chains premised on the largely free movement of parts and goods. Car companies and their suppliers and dealers have businesses based on this premise. So even given the automobile industry’s historic penchant for overstatement, and one’s healthy ambivalence about NAFTA and the new world trade order, a neutral observer finds himself worried.

General Motors said the proposed tariffs could lead to job losses in the U.S. and the new levies might end up “isolating U.S. businesses like GM from the global market that helps to preserve and grow our strength here at home.”

The Alliance of Automobile Manufacturers, a trade group representing domestic and foreign automakers with U.S. operations, predicts the Department of Commerce’s proposed 25 percent tariffs on imported cars might hike the average price of an imported car by as much as $5,800.

“Tariffs will lead to increased producer costs, increased producer costs will lead to increased vehicle costs, increased vehicle costs will lead to fewer sales and less tax receipts, fewer sales will lead to fewer jobs, and those fewer jobs will significantly impact many communities and families across the country,” the alliance fretted in a letter sent to the Department of Commerce.

Illustrating how transnationally complex the modern industry is, Fiat Chrysler Automobiles, which runs 23 plants and employs some 56,000 people in the U.S., is actually by law an Italian-American company incorporated in the Netherlands with headquarters in Britain. Its popular Jeep Renegade is built in Italy, China, and Brazil. According to one estimate, it could lose as much as $866 million in profit if a proposed 25 percent tariff on cars from the European Union is enacted.

Foreign carmakers with factories in America—including BMW, Volvo, Mercedes, Hyundai, Subaru, Toyota, and Honda—also stand to suffer, along with their suppliers. A study by the Peterson Institute predicted that 195,000 jobs will be lost if the tariffs are enacted, and 624,000 will be lost if retaliatory tariffs follow.

Volvo, whose new plant in South Carolina is just opening, said its jobs depend on customers from outside the United States. “Thus, half of the 4,000 direct jobs at the factory that we aim to create are related to exports, and if we cannot trade freely, those U.S. jobs may not be created at all,” the company said in a statement.

The prospect of tariff-induced job losses isn’t just scare talk. While Harley-Davidson has had production outside the U.S. for some years, there’s no doubt it will pin its latest round of projected American job losses directly on the new tariffs. But as the salvos from his Twitter feed have shown, Trump isn’t having Harley’s response to Europe’s actions. “A Harley-Davidson should never be built in another country-never!” the president tweeted. “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!”

Big, noisy, and technologically backward, Harleys undoubtedly have their charm, but the marque has begun to suffer in the coolness stakes as its core audience gets distinctly older. U.S. sales have been in decline for several years. Critics say the company has been too slow to make lighter, more modern motorcycles that cater to younger, technically savvy buyers.

To be fair, motorcycle sales in general have been on the decline in recent years. As young people grow increasingly less interested in bikes, manufacturers have been struggling to adjust to the generational shift in consumer preferences. Yet, ironically, sales of Harley-Davidsons in Europe (the company’s second biggest market) fell less than half a percent in 2017 while dropping more than 9 percent in the U.S. But when you’re selling Americana, actually making your product in America helps.

In this context, some have observed with disappointment, the windfall Harley enjoyed courtesy of the GOP tax cut did not go to bolster American production, or save American jobs or raise wages, or develop electric offerings more quickly. (They might have even helped weather the European tariffs.) Instead, the money reportedly went to stock buybacks, meant to prop up dwindling earnings per share.

The president did not previously see any of this as grounds for excoriating Harley; nor did the company’s facilities in Australia, Brazil, India, and Thailand seem to bother him until the tariff flap. Trump was also silent when Harley decided to close its Kansas City plant in March despite appeals to the president from the plant’s union to save the factory and its 800 jobs—amounting to roughly 15 percent of the company’s labor force.

It used to be a regular refrain of the Republican faithful that the government shouldn’t be in the business of picking winners and losers. (The GM and Chrysler bailouts come to mind.) But if such agnosticism ever were the case, it’s that way no longer, the new wrinkle being that it’s not clear anymore whether the government has any real idea of who it’s setting up to triumph or fail.

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