‘Stable Genius’ Trade Strategy Backfires Spectacularly As Harley-Davidson Moves Production To Europe

By Heisenberg

And here it is folks.

Remember “Trump Starts Trade War: Steel Tariffs Drag Jack Daniels, Hogs Into Absurd Transatlantic Tit-For-Tat“?

No? That’s ok. That post is from March and you’ve slept (and been drunk) since then, but the gist of it was that Harley-Davidson was about to get dented thanks to Trump’s trade bombast.

Fast forward nearly four months, and guess what? Harley is now moving production offshore. To wit, from a Monday morning filing:

The European Union has enacted tariffs on various U.S.-manufactured products, including Harley-Davidson motorcycles. 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.

Consequently, EU tariffs on Harley-Davidson motorcycles exported from the U.S. have increased from 6% to 31%. Harley-Davidson expects these tariffs will result in an incremental cost of approximately $2,200 per average motorcycle exported from the U.S. to the EU.

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. 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. On a full-year basis, the company estimates the aggregate annual impact due to the EU tariffs to be approximately $90 to $100 million.

To address the substantial cost of this tariff burden long-term, Harley-Davidson will be implementing a plan to shift production of motorcycles for EU destinations from the U.S. to its international facilities to avoid the tariff burden. Harley-Davidson expects ramping-up production in international plants will require incremental investment and could take at least 9 to 18 months to be fully complete.

Shares are getting hit in the pre-market and what I would note is that this looks to me like the first major U.S. company to come out and quantify the negative impact the trade threat poses to financial results.

HOG

This of course comes hot on the heels of Daimler’s warning from last week and underscores the notion that while the Mercedes manufacturer may have been the first major corporation to cite trade tension in a guidance cut, it would certainly not be the last.

Moreover, the Harley news is further evidence to support the contention that trade wars cannot be “won”, let alone easily won, as Trump suggested. As I put it over the weekend,  “markets are more interconnected than they’ve ever been [and] that interconnectedness is mirrored in global supply chains and all other aspects of global trade and commerce.”

There’s always – always – a tweet:

To be clear, Harley doesn’t want to do this – but you know, reality:

Harley-Davidson maintains a strong commitment to U.S.-based manufacturing which is valued by riders globally. 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 accessible to customers in the EU and maintain a viable business in Europe. Europe is a critical market for Harley-Davidson. In 2017, nearly 40,000 riders bought new Harley-Davidson motorcycles in Europe, and the revenue generated from the EU countries is second only to the U.S.

In short, “America first” won’t work precisely because it can’t work. American industry will be collateral damage from Trump’s myopic plan to restore American industry – oh, the fucking irony. 

Harley’s Monday morning broadside comes just hours after Trump’s “more than reciprocity” tweet and just days after his Friday threat about “placing a 20% Tariff on all of [Europe’s] cars coming into the U.S.

This is your trade strategy on Trump:

Image result for wile coyote boulder gif

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Published by

Gary

NFTRH.com & Biiwii.com