Harley-Davidson move shows the consequences of EU tariffs
Wednesday, June 27, 2018
To counter the rise of European Union (EU) tariffs from 6 percent to 31 percent on U.S.-made products, including Harley-Davidson motorcycles, the famed company is shifting some production overseas. "These tariffs, which became effective June 22, 2018, were imposed in response to the tariffs the U.S. imposed on steel and aluminum exported from the EU to the U.S.," Harley-Davidson announced in a filing.
In early May, the Trump administration announced the tariffs of foreign-made aluminum (10 percent) and steel (25 percent) to enhance U.S. economic and national security.
The president in part predicted his protectionist trade policy would spur job creation for U.S. companies beset by unfair foreign competition.
EU tariffs will, over time, increase the average price of motorcycles by about $2,200 per bike made in the U.S. and sold in the EU, according to Harley-Davidson. The company anticipates the overall yearly cost of the EU tariffs to range from $90 to $100 million, while announcing that motorcycle prices will not rise as a result, opting to swallow the increased costs instead.
EU consumers buy 40,000 Harley-Davidson motorcycles annually, making it the second largest market to the U.S.
"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," according to the company’s filing.
"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 to $45 million."
The company plans to take 9 to 18 months to ramp up overseas production. The iconic Harley-Davidson operates manufacturing facilities in Kansas City, Missouri; York, Pennsylvania; Menomonee Falls, Wisconsin; and Tomahawk, Wisconsin. The company also has assembly plants in Manaus, Brazil; Bawal, India; and Rayong, Thailand.
Harley-Davidson will likely not be the last U.S. manufacturer to move abroad, Nomi Prins, an American author of six books and a distinguished senior fellow at the nonpartisan public policy institute Demos told MultiBriefs.com by phone.
"I expect a series of company announcements to move production outside the U.S.," she said. Why? Retaliatory tariffs by the EU to the U.S.’s tariffs create uncertainty for American companies, according to Prins, whose new book is "Collusion: How Central Bankers Rigged the World."
If there is one thing that firms detest, it is the uncertainty of government economic policy.
A recent report by Andy Stoeckel and Warwick McKibbin for the Brookings Institution unpacked a scenario of a future trade war, of rising tariffs in a tit-for-tat spiral. According to them, in the event that tariffs worldwide climbed 10 percent, the gross national product of most nations would fall in a range between 1 percent and 4.5 percent.
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