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Home / Business / Trump's tariffs are beginning to cause problems

Trump's tariffs are beginning to cause problems



It's a battle of big brands in Trumponomics this week.

President Trump insists that his personal brand is best given another big name: motorcycle manufacturer Harley-Davidson, whose ticker symbol is HOG. Trump attacked Harley this week as the company tried to mitigate the damage Trump had done to the trade wars. The spectacle places an "America First" president against a purely American brand whose profits would suffer if it actually did what Trump wants.

When Trump imposed tariffs on steel and aluminum imports from most countries earlier this year, the 28 nations counted. The European Union responded by pounding tariffs on a select basket of US imports into Europe, including Harley bikes. The customs duty would add $ 2,200 to the cost of a Harley in Europe. Instead of devouring these costs or passing them on to customers, Harley has this week shifted the production of European-based bikes from US plants to an overseas factory, probably one operating in Thailand. In this way, Harley can transport bicycles from Thailand to Europe without paying the high tariff on US imports.

<p class = "Canvas Atom Canvas Text Mb (1.0em) Mb (0) – sm Mt (0.8 em) – sm" type = "text" content = "Trump characterized Harley's decision as personal Insult and said the company "should remain 100% in America." He has attacked other prominent American companies, of course, including Amazon, Ford, Carrier, Boeing and probably a dozen media. But Trump's interference in a public company is committed to acting in the interests of its shareholders – not in the presidency – but is still an abusive government attack, this week's trump-o-meter reads WEAK, our equivalent of a C-minus. "data-reactid =" 18 "> Trump characterized Harley's decision as a personal insult and told the company "should stay 100% in America." He has attacked other prominent American companies, including Amazon, Ford, Carrier, Boeing, and probably a dozen media. But Trump's interference in a corporation committed to acting in the interests of its shareholders – not the president's – is an abusive government transgression. That's why the trump-o-meter reads WEAK this week, our counterpart to a C-minus.

Source: Yahoo Finance

The Harley drama contains many of the tensions that have arisen this year in recent years and Trump has given a reliable cauldron of indignation he can dive again and again. Harley has been battling declining sales since sales in 2014 reached $ 6.2 billion. To compensate for the declining sales in the US, Harley has expanded like many other companies in overseas markets. But motorcycles built in America by relatively expensive American workers are not necessarily affordable in other markets. In addition, some emerging markets, including India, still demand high import tariffs. So, Harley has built two overseas factories in India and Thailand to make bicycles for some overseas markets.

If Trump were to run the business, he might say, no, no way, we'll only build motorcycles in America. But then he would have to figure out how to offset a major cost penalty over competing bicycles in foreign markets. It takes incredible brands to convince consumers to pay a premium for their product when the competition is 10% or 25% or 40% cheaper. Harley did it for a considerable time. But weaker US sales indicate that it is not working, at least not good enough to increase sales.

Harley could remain 100% American, as Trump wants, and simply accept declining sales. But who wants to own the stock? The stock has fallen 23% in the last 5 years, while the S & P 500 has risen 68%. HOG has lagged behind the market with a staggering 91% – with a turnaround plan. There is nothing all-American. If the CEO said: Forget it, whatever, we'll just drop sales and become more and more uneconomic, there would be no more Harleys we could do soon. That's already happened to Victory Motorcycles, a smaller Harley rival that ceased operations last year.

Trump and some union members who are losing their jobs as Harley consolidates have accused the company of using the European tariff increase as smoke protection to relocate production overseas so that expensive American workers can be fired. It is possible. But there remains the question of how Harley should survive when demand drops and costs remain high. If you have a better idea than to send a production abroad, apply as CEO.

Trump's attack on Harley is likely to stop other companies from moving overseas as well, as they need to know I'll be in Trump's crosshairs. But Harley probably knew that too and did the move anyway. Notably, the company did not "announce" the production layer but announced it in a filing with the SEC, which is required by public companies when they plan a material change. No doubt Harley would be happy if no one noticed. The real incentive for other companies that need to change production to avoid customs fines will now be more insidious than Harley.

Trump's love of tariffs stems from the simplifying belief that increasing imports will spur demand for competing domestic products. But tariffs produce all sorts of unintended consequences, while the government says far too much about how companies should operate. Trump seems content with this as he tweets his orders about where companies should settle. What he does not seem to notice is that he also orders them to lose money.

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