Trump’s (un)Intentional War on Harley-Davidson

Trump's (un)Intentional War on Harley-Davidson.

You may not realize this, but Donald Trump is at war with Harley-Davidson, the American manufacturer of the world’s most iconic motorcycles. Then again, Donald Trump may not realize it either. Let’s hope he reads this column.

Harley-Davidson is not having a great year. In January, the legendary bike company, struggling to reverse a four-year slide in sales, had to close its Kansas City factory. Now Donald Trump – who seems as if he’d like to be a Harley man – has added to its woes.

This week’s announcement of steel tariffs on US imports could add $30m to the company’s costs, according to Wedbush Securities, an investment firm. Worse still, European leaders are threatening retaliation, and several symbols of Americana – including Kentucky whiskey, Levi’s and Harley-Davidson motorcycles – are on their list.

The EU can “also do stupid,” noted Jean-Claude Juncker, the president of the European commission, on German television.

When you are trying to make a political point, Harley-Davidson is a great target. Based in Wisconsin, the home state of Paul Ryan, the House speaker, Harley-Davidson may be the least able to withstand a punitive trade war. Little wonder, then, that Ryan has come out strongly against the tariffs.

“We are extremely worried about the consequences of a trade war and are urging the White House to not advance with this plan,” said AshLee Strong, Ryan’s spokeswoman. “The new tax reform law has boosted the economy and we certainly don’t want to jeopardize those gains.”

US demand for Harley’s bikes is falling. In October, Harley reported a 40% drop in its quarterly profit as the appeal of a gas-guzzling hog continued to elude younger consumers, and old stalwart riders age out of leather jackets and highway cruising. Shares in the company have dropped about 13% this year.

About 16% of Harley’s sales are to Europe, and the company has warned that in addition to the effects of metal import tariffs in driving up manufacturing costs, “a punitive, retaliatory tariff on Harley-Davidson motorcycles in any market would have a significant impact on our sales, our dealers, their suppliers and our customers.”

For Harley, the threat of tariffs has a ring of familiarity. In 2003, the EU also threatened additional tax levies on its bikes after George W Bush sought taxes on imported steel.

In India, Harley skirted 100% import tariffs by opening an assembly plant in Bawal in 2011. Harley’s sales have grown by 30% there in the past two years, according to the Milwaukee Journal-Sentinel. A similar assembly plant system already operates in Brazil.

But the company cannot win. It came under fire from US workers over plans to open an assembly plant in Thailand, where tariffs on imports are about 60%.

The United Steelworkers president, Leo Gerard, described Harley-Davidson as the “crown jewel of American manufacturing” and called the management’s decision to take production outside the US as “a slap in the face to the American worker and to hundreds of thousands of Harley riders across the country.”

“Offshoring production is the wrong path to prosperity,” Gerard added.

In this, Harley is caught between two opposing forces. Foreign sales – which account for about a third of its overall number – are crucial to its future, and the company has said it intends to grow its international business 50% by 2027. But foreign sales declined 4% last year, a decline the company attributed to soft sales in China.

“Steel is back, aluminum is back,” said President Donald Trump at a Pennsylvania rally over the weekend.

President Trump touted his plan to place tariffs on foreign steel and aluminum. The president says it will re-energize American production in those industries.

But Joe Daniels, the chairman of Marquette’s economics department, said the tariffs can hurt Harley-Davidson in three ways. First, if foreign steel costs more, it will increase the motorcycle maker’s manufacturing costs.

“That’s the reason why we import a lot of steel and aluminum is that simply, we can get the product cheaper because of big capacity globally,” Daniels said.

Second, the company could also suffer from retaliatory tariffs imposed by other countries. The European Union has specifically mentioned Harley-Davidson as a possible target.

Third, if there is a ton of foreign steel no longer going to the U.S., it’ll be cheaper for others.

“That can benefit Harley competitors — let’s say, for example, BMW — they have the potential for getting steel cheaper now,” Daniels said.

Anyway you slice it up, the very tariffs meant to help the U.S. will probably bring much more pain than gain.