Harley-Davidson 2018: Trump, Tariffs and The Future

Harley-Davidson 2018: Trump, Tariffs and the Future
Submitted by:
Kratika Joshi
B.A. LL.B.(H) VI Sem
What does this case relate to? Why do you think, Tariff are harmful to trade?
This case relates to, the American manufacturer of motorcycles, Harley- Davidson
Inc., their presence in global market and the recent trends in their sale and
profitability. Harley has been suffering from a decade long decline in sales and
profitability due to various factors or reasons. Amidst all this, the company has to
shift some of their Unites States based production to a foreign country owing to the
European Union’s announcement of increase in import duty imposed on the
motorcycles of the company manufactured in United States. Would this shifting be
the solution to the company’s declining share remains unanswered! But this shift is
needed as these tariffs are costly.
Tariff refers to a tax imposed by a government on goods and services imported from
other countries that serves to increase the price and make imports less desirable, or at
least less competitive, versus domestic goods and services. Tariffs are generally
introduced as a means of restricting trade from particular countries or reducing the
importation of specific types of goods and services. Governments impose tariffs to
raise revenue, protect domestic industries, or exert political leverage over another
country.
When a domestic industry feels threatened, it asks for taxing of its foreign
competitors' imports. It helps that sector, and that often creates more jobs. Growth in
that industry improves workers' lives, but it also raises import prices for consumers.
Tariffs always force a trade-off between workers and consumers.
Another disadvantage of tariffs is that other countries retaliate. They raise tariffs on
similar products to protect their domestic industries. That leads to a downward
economic spiral, as it did during the Great Depression of 1929. Although tariffs aim to
protect local industries, it may hurt the economy as a whole. Such trade restrictions
cannot exist in free trade agreements. It also prompts other nations to levy retaliatory
tariffs, reducing the volume of business with each other.
Why has Harley suffered declining sales in USA and other Markets since 2008?
The bikes manufactured by Harley has created a traditional image of the bikes, their
average consumer age have risen from that of a 32 year in 90s to that of 47-year-old
in recent times. Most youngster’s associate these bikes with that their father’s or
grandfather would have ridden, they prefer smaller, faster, sleeker and cheap sport
bike.
Another problem is the customisation that raises the prices which most are unable to
afford. The same choice of cheaper bikes is preferred by consumers in many foreign
markets, especially those that Harley has targeted. Though Harley has a high degree
of loyalty from its traditional consumer base it needs to attract new buyers by
diversifying its products if it wants a larger share in global competition as effects of
its declining profitability and sales are seen in form of rising debt be it short term or
long term.
What Prompted the steel tariffs of 2018? How did the EU respond to its
imposition?
In the wake of rise of protectionism in 2018, U.S. imposed tariffs on imported steel
(25%) and aluminium (10%) from several countries including European Union (EU).
This decision stems from a Commerce Department investigation that imported metal
threatened national security by degrading the American industrial base. The
administration said that it wants to combat cheap metals flooding into the United
States, particularly from China, but a broad set of tariffs would fall most heavily on
allies, especially Canada, which supplies steel and aluminium to American companies
as well as the military. EU retaliated against U.S. soon after, increasing the 6% import
duty on motorcycles with engines greater than 500cc by 25%, which caused a direct
hit on the American Manufacturer Harley-Davidson Inc.
How did Harley respond to EU Tariffs? What are pros and cons of this strategy?
Harley decided to shift some U.S. production out of U.S. in order to gain entry into
EU market at historically lower 6% import duty. The then new assembly facility in
Thailand was believed by analysts to be the primary beneficiary of production shift.
By doing this, Harley Davidson:
 Doesn’t have to pay tariffs on the steel and aluminium it brings into those
nations to manufacture motorcycles, and,
 It doesn’t have to pay retaliatory tariffs when it ships bikes to Europe from
non-US plants.
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. This is how capitalism works.
Major con comes in form of backlash from its own customers and the White House,
apparently whose sentimental value are being effected with the production shifting
and them choosing to prefer other American manufacturers specifically ‘The Indian’.
What do you think Harley should do moving forward?

Harley’s strategic move to protect its sales and cost by means of shifting base agitated
U.S. President who had earlier touted Harley as the quintessential American company,
who did not fail to voice his opinion that ‘A Harley should never be built in another
country’, he also went onto encourage boycott of Harley-Davidson’s product. This
has created troubles for the company and need for them to explore additional options.
Meanwhile the company does a poor job explaining its predicament and the rationale
behind its decisions which is causing loss of even the traditional consumer base.
Harley-Davidson needs to use social media and other channels to communicate a
simple message:
 New tariffs from the US and EU cost it $100M per year
 That’s about 20% of its entire annual profits
 Lower tariffs mean more manufacturing in the US – higher tariffs mean the
opposite
This should be communicated not by the CEO but by either Harley-Davidson factory
workers or by spokespeople who ride the company’s motorcycles. This won’t win
over all of its detractors but will have a positive effect and give talking points to those
who currently have no line of thinking other than that coming from the
Administration.
The choice to maximize profits, which is rational, capitalistic behaviour is not being
vested with the company, they are being questioned and downgraded for their rational
choices.
In my opinion, Harley-Davidson’s leadership is making rational decisions in a tough
climate. They are moving production intended for overseas markets to overseas
plants. Harley had stated that bikes for sale in the US will continue to be made there.
I don’t think this is the beginning of the end but rather a set of actions caused by an
administration implementing heavy taxes (in the form of tariffs) on US-made products
and Harley should make their reasons be known, the company can make this
argument about tariffs and not criticize the administration to win back their consumer
base. But staying silent means they have no influence over the narratives and that is a
big mistake.

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Harley-Davidson 2018: Trump, Tariffs and the Future

B.A. LL.B.(H) VI Sem

What do you think Harley should do moving forward?

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