Harley Moving Production to Europe: What Does It Mean for Trade Wars?
The Dawn
The US President Donald Trump passed a decree imposing a hefty duty on imported steel and aluminum from all the countries excluding Canada and Mexico. The President justified the move by arguing that it was imperative to do so to augment the country’s national security. A tariff rate of 25% and 10% on steel and aluminum has been levied under the mandate.
This move by the US attracted instant retaliation from Europe. Juncker, the President of the European Commission (EC) has assured a WTO action in the case saying that the US move is at odds with the rules and regulations of WTO.
Harley’s Decision
Due to the imposition of tariffs on EU goods, the EU responded by focusing on America’s quintessential products. As a result, it increased the tariffs on US motorcycles from 6% to 31%, adding approximately $2200 to the average cost of a motorcycle. This increase in the cost had a deleterious and immediate effect on the companies in this segment.
The American brand, Harley Davidson, is not in the favor of this tariff imposition. It will cost the company around $30 – $45 million for the rest of the year and nearly $90 million- $100 million in the next year which it is not ready to accept. Besides, EU constitutes the second largest market for the company which contributed to more than 16% of the company’s last year sales.
For this reason, the company has strategized to shift its production facilities for EU countries from the US to global locations as it is the only viable recourse available for sustaining the business in the EU countries.
Upshots of the Decision
The US President Donald Trump went furious over Harley’s decision to manufacture abroad. He threatened the company that it would not be allowed to send back foreign manufactured bikes in the US without paying a hefty tariff on the same. However, the company has not made any official statement regarding the import of bikes from abroad for the US customers which most probably means that the bikes manufactured overseas will sell overseas and the bikes for the US will be manufactured in the US only.
The ‘Dow’
The US investors were petrified as the trade war between Europe and US continued to stretch. As a result, there was a fall in the Dow by almost 500 points on the day of the announcement and it closed down by around 328 points. Europe and Asia also joined in the selloff causing a sharp decline in the stocks.
Retaliation
The EU has refused to be cowed down and Harley’s decision to sift production from the US is vindication of the fact. On a similar ground, Justin Trudeau, the Canadian Prime Minister declared levied tariffs up to 25% on CAD16.6 billion worth of US imports.
Conclusion
The US decision for a trade war is affecting its own businesses as well. Harley Davidson was only the first company to shift allegiance but if the trade war continues, many more companies are expected to follow suite. This trade war will do no good to the global economy but only satisfy the whims and ego of its leaders.
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