Harley-Davidson, a motorcycle maker that President Donald Trump praised last year for “building things in America,” said Monday that it was shifting some production out of the United States to escape European tariffs that had been imposed in retaliation for the president’s tariffs on steel and aluminum.
Harley’s decision to move its production of motorcycles bound for European customers demonstrated the costs of the president’s “America First” trade policies, which he says will return lost manufacturing jobs to the United States.
The announcement also triggered a selloff on Wall Street, where Harley shares lost nearly 6 percent and the Dow Jones Industrial Average fell nearly 500 points before closing down more than 300 points or more than 1.3 percent.
The European Union last week imposed tariffs on a range of U.S. products, including Harley motorcycles, Florida orange juice, North Carolina tobacco and Kentucky bourbon, in response to similar levies that Trump put on steel and aluminum from Europe. The EU tariffs will add $2,200 to the cost of an average motorcycle, threatening “an immediate and lasting detrimental impact to its business,” the company said Monday in a filing with the Securities and Exchange Commission.
Trump criticized Harley’s decision and, in a cryptic tweet, suggested it ultimately would not face tariffs.
“Surprised that Harley-Davidson, of all companies, would be the first to wave the White Flag,” the president tweeted. “I fought hard for them and ultimately they will not pay tariffs selling into the EU, which has hurt us badly on trade, down $151 Billion. Taxes just a Harley excuse – be patient!”
Surprised that Harley-Davidson, of all companies, would be the first to wave the White Flag. I fought hard for them and ultimately they will not pay tariffs selling into the E.U., which has hurt us badly on trade, down $151 Billion. Taxes just a Harley excuse – be patient! #MAGA
— Donald J. Trump (@realDonaldTrump) June 25, 2018
The statement seemed to suggest that the president expects to negotiate a resolution of his complaints about EU trade practices, which he blames for the $151 billion U.S. merchandise trade deficit with its European allies. But in the short term, further escalation of the trade dispute seems likely. Trump has threatened to impose tariffs within weeks on foreign autos and auto parts, a move that would hit German carmakers especially hard.
Reaction to the company’s announcement suggested that the EU’s strategy of targeting products made in politically-important states in its response to Trump’s metals tariffs was succeeding, according to Edward Alden, a senior fellow at the Council on Foreign Relations. The Milwaukee-based company was hit as a way to influence voters in a state that Trump carried in 2016 after President Barack Obama had won it twice.
“If Trump’s trade policies are leading an iconic company like Harley-Davidson to move production out of the United States, then who exactly is benefiting?” Alden said. “This will pose a real challenge to the president’s core claim that his policies will lead companies to build more things in the U.S.”
Harley’s announcement came as administration officials struggled to present a united front on another element of Trump’s trade policy, new measures designed to curb China’s ability to access American technology by investing in American companies.
Treasury Secretary Steven Mnuchin on Monday morning labeled press reports about the forthcoming announcement “fake news” and said any new measures would apply to “all countries that are trying to steal our technology,” not just China.
That seemed at odds with a May 29 White House statement, which said “the United States will implement specific investment restrictions and enhanced export controls for Chinese persons and entities related to the acquisition of industrially significant technology.” Those measures would be announced by June 30 and implemented “shortly thereafter,” the White House said at the time.
Hours after Mnuchin’s tweet, Peter Navarro, head of the White House office of trade and manufacturing policy, appeared to contradict the treasury chief. The pending announcement “does not include any other countries” except China.
“The whole idea that we’re putting investment restrictions on the world — please discount that,” he said in an interview with CNBC.
Harley’s announcement is among the first signs that Trump’s use of tariffs, which he has promoted as a way to boost employment in the steel and aluminum industries, is hurting other American businesses. Harley’s motorcycles division employs about 5,200 workers. The company provided no details of the number of jobs that would be lost as a result of the production change. A company spokesman did not immediately respond to a request for comment.
“Harley-Davidson’s announcement today is the latest slap in the face to the loyal, highly-skilled workforce that made Harley an iconic American brand,” Robert Martinez, international president of the International Association of Machinists and Aerospace Workers, which represents Harley employees in three U.S. plants, said in a statement. “Even before the EU’s announcement, Harley made the decision to close its plant in Kansas City and has manufacturing facilities in India and Brazil. It also announced a future plant in Thailand.”
For the rest of this year, the company said, the tariffs will add $30 million to $45 million to its expenses. Rather than pass on those costs to consumers in higher prices, Harley said it would absorb them for now while it begins planning to move production offshore. The full-year tariff bill could reach $100 million, the company said.
“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 available to customers in the EU and maintain a viable business in Europe,” the company said.
Europe represents Harley’s No. 2 market, after the United States, with sales last year approaching 40,000 units. Shifting production to its non-U.S. plants will require additional investment overseas and is expected to take nine to 18 months, Harley said.
In February 2017, Trump welcomed Harley executives and workers to the White House, where he celebrated the company’s success and predicted more to come. “Thank you, Harley-Davidson, for building things in America,” the president said then. “And I think you’re going to even expand.”
Initial reaction from prominent Republicans on Capitol Hill highlighted unease with the president’s tactics. “This is further proof of the harm from unilateral tariffs,” said AshLee Strong, a spokeswoman for House Speaker Paul Ryan, R-Wis. “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.”
Trump has said that “trade wars are good and easy to win,” but users of imported steel and aluminum already are feeling the pain of the administration’s policies.
Mid-Continent Nail of Poplar Bluff, Mo., the largest U.S. nail manufacturer, cut 60 jobs on June 15 and plans to lay off an additional 200 workers in a few days, citing plummeting sales following the imposition of Trump’s tariffs on metals. The company said it may not survive past Labor Day if it doesn’t get relief from the tariffs.
“It’s not just us. There will be many, many companies that will pay a price for this,” said George Skarich, vice president of sales and marketing. “I’m disappointed in Trump. We didn’t see this coming.”
Mid-Continent’s orders for July are only 30 percent of what they were last year, and Skarich is afraid that many of his lost customers will never return.
Skarich voted for Trump, as did 79 percent of surrounding Butler County.
Mid-Continent Nail imports from Mexico most of the metal wire it uses to make nails. By driving up the company’s costs, Trump’s tariffs are making it nearly impossible for the 500-worker company to compete with cheap nails from China, Skarich said.
“The Chinese get a pass, and we pay a price,” Skarich said. “Trump ran on jobs and making America great again, but he is making a decision that may help big steel, but it hurts downstream businesses like ours who employ a heck of a lot more people than steel does.”
Mid-Continent has asked the Commerce Department to grant it a tariff waiver that would allow it to continue importing Mexican metal. But the department is struggling amid a backlog of roughly 21,000 similar product exclusion requests and may not act fast enough to save the jobs of employees making up to $14 an hour, plus benefits.
Sen. Claire McCaskill, D-Mo., criticized Commerce Secretary Wilbur Ross last week during a Senate Finance Committee hearing, saying his handling of the product exclusions threatened the company’s future.
“They have filed 24 separate exclusion requests, but there will not be enough time for them to potentially save their business,” she said.