Trade War Watch: It's Okay to Feel a Little Sorry for Harley-Davidson

Last summer, the European Union imposed an additional 25-percent import duty on top of the existing 6-percent tariff levied on large motorcycles. Established as a response to the United States’ duties on steel and aluminum, the move crippled Harley-Davidson’s ability to thrive in the European market — a region that accounts for about one-sixth of its global volume.

While much of the media is focused on framing Donald Trump for Harley’s plight, the situation is a little more complicated. The president’s tariffs did indeed spur the EU’s retaliatory fees, but it was Europe that decided to place its crosshairs upon the iconically American motorcycle brand.

We’re not really interested in who fired the first shot, and not just because we’ll never be able to declare a winner that satisfies everyone. Harley-Davidson faces real problems because of the trade war and we’ve been treating it as the canary in the coal mine. Thanks to slimmer margins, motorcycle manufacturers are more susceptible to economic changes than their automotive counterparts — making them a rather effective barometer.

Harley-Davidson reported lackluster first-quarter profits on Tuesday, though Bloomberg claims the results surpassed analysts’ expectations. That still meant the company’s adjusted net income for Q1 fell 26 percent, however. Excluding restructuring costs, tariffs and other money eaters, HD posted earnings of 98 cents a share — beating the average estimate of 85 cents.

The good news runs out here, as HD said it will likely have to move more production out of the U.S. Trump has already come down on the company for its overseas manufacturing, something it did to help mitigate manufacturing costs and boost overseas volume (primarily in Asia). However, the tariff-related decision clearly irked him more than usual, with the president suggesting the company effectively “waved the white flag.”

Now, he’s changed is tune, if only by a bit. In a tweet issued Tuesday, President Trump accused the EU of bullying the company with tariffs by quoting Fox News pundit Maria Bartiromo.

“‘Harley Davidson has struggled with Tariffs with the EU, currently paying 31 [percent]. They’ve had to move production overseas to try and offset some of that Tariff that they’ve been hit with which will rise to 66 [percent] in June of 2021.’ @MariaBartiromo So unfair to U.S. We will Reciprocate!”

It’s a little strange seeing the president come to the company’s defense; it could be a sign that these salvoes of targeted tariffs are getting out of hand (and are nowhere near over). Meanwhile, HD finds itself caught in the middle of a political feud with little recourse. If it doesn’t build in Europe, its product will be taxed into oblivion. Don’t take our word for it — the company said as much in 2018.

“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,” Harley-Davidson explained last June.

Even though the company’s woes extend far beyond the issue of tariffs (its main customer base is literally dying out), it’s one of the biggest problems it has to contend with right now. This has forced it to focus nearly all of its efforts on managing its supply chains and factory placement, rather than developing new products and effective marketing campaigns that could potentially help rekindle interest in the brand. You don’t need much of an imagination to craft a scenario where the trade war continues to escalate — and automobile tariffs continue to rise — to a point where every manufacturer plays it safe and boring in a period where sale growth is already stagnating.

[Image: Harley-Davidson]