- The Washington Times - Monday, June 25, 2018

Harley-Davidson said Monday that it will move some production of its iconic motorcycles to Europe to avoid new European Union tariffs imposed in an escalating trade dispute with the U.S., dealing an embarrassing blow to President Trump’s strategy for boosting domestic manufacturing and exports.

The president, who has embraced the motorcycle company’s made-in-America ethos since the start of his administration, accused Harley-Davidson of waving the “white flag” of surrender and said it was using taxes as an excuse for the move.

The Milwaukee-based company blamed its move on the tit-for-tat trade feud that began with the administration slapping a 25 percent tariff on EU steel and aluminum. The EU retaliated Friday with tariffs on $3.4 billion worth of U.S. goods, including a tax increase from 6 percent to 31 percent on motorcycles.

The higher tariff would add about $2,200 eventually to the average cost of a Harley-Davidson motorcycle sold in Europe, which is the company’s second-biggest market after the U.S., the firm said in a regulatory filing.

Shifting production to Europe “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 said. “Europe is a critical market for Harley-Davidson.”

The news sent the price of Harley-Davidson shares plunging 5.97 percent Monday on a day of substantial market losses across the board. The Dow Jones industrial average fell 328.09 points, or 1.33 percent.

Some analysts said the full impact of the tariffs could cost Harley-Davidson nearly $100 million per year, about 15 percent of its annual profits.

The announcement also was a high-profile setback for Mr. Trump, who boasted that trade wars are easy to win. The president also is embroiled in tariff feuds with major U.S. trading partners such as China, Canada and Mexico.

Mr. Trump said in a tweet late Monday, “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!”

Sen. Ben Sasse, Nebraska Republican, said Mr. Trump’s tweet “will go over like a Vespa at Sturgis,” referring to the annual motorcycle rally in South Dakota.

“The problem isn’t that Harley is unpatriotic — it’s that tariffs are stupid,” Mr. Sasse said. “They’re tax increases on Americans, they don’t work, and apparently we’re going to see more of this.”

Harley-Davidson’s decision shifted the trade conflict from the “phony war” phase to the real thing, said Edward Alden, a trade policy scholar with the Council on Foreign Relations.

“Harley is such an iconic American company, one that has shown a strong commitment to making its products in the United States,” he said. “If the president’s trade policies are harming Harley-Davidson and its workers, then who exactly are they helping?”

The White House blamed the escalating trade feud on the EU.

“The European Union is attempting to punish U.S. workers with unfair and discriminatory trade policies, and President Trump will continue to push for free, fair and reciprocal trade and hopes the EU will join us in that,” said White House press secretary Sarah Huckabee Sanders.

She credited Mr. Trump’s trade and economic policies with delivering a net benefit to American workers, including the addition of 300,000 jobs in the manufacturing sector.

Mr. Trump has singled out Harley-Davidson for special attention. He hosted company officials and union leaders at the White House shortly after his inauguration and displayed several of the company’s gleaming bikes on the South Lawn. At the time, Mr. Trump praised Harley-Davidson workers for helping him carry Wisconsin in the presidential election, and he promised that his policies would spur growth for the company.

“Thank you, Harley-Davidson, for building things in America,” Mr. Trump said back then. “I think you’re going to even expand. … We’re going to help you, too, and we’re going to make it really great for business — not just you, but for everybody.”

The announcement also creates problems for Wisconsin Gov. Scott Walker, a Republican and ally of Mr. Trump. Asked about the Harley decision, Mr. Walker addressed the issue of tariffs in general but not specifically the situation the company faced.

“The ultimate goal, if we could get there, is no tariffs or, if anything, few tariffs on anything,” Mr. Walker said. “That’s what I’m going to push for: ways that we can get to a level playing field. Then we don’t have this tit for tat on any number of products out there.”

Increasing foreign investment in the United States, something Mr. Walker was advocating at a Commerce Department event in Washington last week, will also help reduce the trade imbalance and need for tariffs, he said.

Concerns about a broader economic impact were amplified by the quick pace of developments in the tariff feud. Mr. Alden noted that America’s steel and aluminum tariffs took effect 3½ weeks ago, the EU tariffs took effect Friday, Canada’s start next month and a U.S.-Chinese tariff battle kicks off July 6.

“We have only begun to see the effects,” he said. “U.S. manufacturers are feeling the pinch from higher steel and aluminum prices. Cheese and whiskey producers are getting hit by the EU tariffs. Pork producers are losing market share in Mexico. Soybean producers are going to lose their largest global market when China retaliates.”

He predicted, “This is going to hurt a lot of American companies, workers and farmers in many different states. At some point — even though voters seem to like the president’s tough on trade rhetoric — this will inevitably become a political negative for the Trump administration.”

Harley-Davidson operates four plants in the U.S.: in York, Pennsylvania; in Kansas City, Missouri; and two in Wisconsin. The company announced in January that it will consolidate the Kansas City plant with its Pennsylvania operation because of declining sales.

Harley-Davidson also operates manufacturing plants in Brazil, India and Australia, and is beginning production in Thailand this year.

In its statement, the company said it “maintains a strong commitment to U.S.-based manufacturing which is valued by riders globally.”

Harley-Davidson will not raise its prices to avert “an immediate and lasting detrimental impact” on sales in Europe, it said. It will instead absorb a significant amount of the cost in the near term and anticipates the cost for the rest of the year to be approximately $30 million to $45 million.

More potential pitfalls for Harley-Davidson and other U.S. manufacturers could be on the way.

Last week, German automaker Daimler AG cut its 2018 earnings outlook. It said the change is partly because of increased import tariffs for U.S. vehicles in China. Daimler produces many of its Mercedes vehicles in the U.S.

On Monday, the vice president of the EU’s governing body said Europe and China will form a group aimed at updating global trade rules to address technology policy, government subsidies and other emerging complaints in a bid to preserve support for international commerce.

European Commission Vice President Jyrki Katainen said Mr. Trump’s unilateral actions in disputes over steel, China’s technology policy and other issues highlighted the need to modernize the World Trade Organization to reflect developments in the world economy.

U.S. lawmakers also have been urging Mr. Trump to back off a trade war.

In a meeting with lawmakers at the White House on trade in February, Sen. Patrick J. Toomey, Pennsylvania Republican, was one of those warning the president about the ramifications of raising steel and aluminum tariffs by citing a national security emergency.

“Invoking national security, when I think it’s really hard to make that case, invites retaliation that will be problematic for us,” Mr. Toomey told the president.

In response, Mr. Trump cited India’s high tariffs on Harley-Davidson.

“I think we should have a reciprocal tax,” the president said. “Because ultimately, what’s going to happen — either we’ll collect the same that they’re collecting or, probably, what happens is they’ll end up not charging a tax and we won’t have a tax. And that becomes free trade.”

This article is based in part on wire service reports.

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