Harley-Davidson is losing America’s trade war—and America is losing Harley-Davidson

Made in America, for now.
Made in America, for now.
Image: Reuters/Albert Gea
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Donald Trump once embraced Harley Davidson as an icon of his America First vision of US manufacturing potential. Now the global blowback from his trade policies are punishing the company and its customers—and sending Harley to set up factories on foreign shores.

In its announcement of third-quarter earnings this morning (Oct. 23), Harley-Davidson said it’s currently working out how to move production of its European motorcycles to plants outside the US.

“This is something we never contemplated doing, we never imaged moving production for our European customers outside of the US,” said John Olin, Harley’s CFO. Though the company hasn’t yet figured out the details of its supply chain shift, it will announce a plan early next year, said Olin.

Why the urgency? In June, the EU imposed an additional 25% in duties on big motorcycles on top of the previous 6% barrier. Those tariffs came in response to US duties on steel and aluminum, which the Trump administration imposed that same month.

This is a problem for Harley because Europe is a vital market. In Q3, the company sold about one-sixth of its motorcycles in Europe (along with the Middle East and Africa)—equal to around 10,000 bikes. So far this year, the region’s sales have been rising at a brisk clip of nearly 5% a year—versus the 10% nosedive in US sales.

Around three-fifths of the Harleys sold in Europe are currently made in the US. The company said this morning that EU tariffs added costs of around $25 million so far this year. If those barriers remain in place, those costs will climb to between $90 million and $100 million in 2019. According to earlier estimates, the tariffs raise European prices by an average of $2,200 per bike.

As it happens, the cause of Europe’s import tax on Harleys—Trump’s tariffs on foreign steel and aluminum—is also biting the company’s margins. The leap in steel and aluminum prices drove a sharp rise in raw material costs in Q3, said Harley management, which should increase this year’s costs as much as $20 million. On top of that is China’s retaliatory tariff on its bikes—duties of 25% went into effect in late August—and rising input costs resulting from Trump’s tariffs on Chinese goods. That quadruple-whammy of trade-war factors will add up to between $43 million and $48 million of extra costs this year, said Olin.

Harley isn’t the only US manufacturer reeling from the trade war fallout. Heavy equipment-maker Caterpillar reported that higher steel prices and tariffs were pushing up manufacturing costs, in its earnings announcement this morning. Yesterday, Polaris—a Minnesota-based maker of motorcycles, snowmobiles, and all-terrain vehicles—said tariffs will add $40 million to its costs in 2018.

Neither Caterpillar nor Polaris, however, has found itself the object of presidential scrutiny the way Harley has. Throughout the summer, Trump ripped into the company for its plans to shift its production of European bikes outside the US. For example:

If that scrutiny is indeed hurting Harley, its managers didn’t mention it in the earnings call. So for now, anyway, the company seems to be steeling itself not to blink.