Harley-Davidson will not raise prices to cover tariff costs

Randal Sanchez
June 26, 2018

Now, Harley seems to encapsulate a lot of what's going wrong.

Harley-Davidson's move is some of the most direct evidence yet that tit-for-tat trade fights between the United States and other countries have consequences for American companies.

Harley-Davidson's warning is a huge blow for the Republican President, who says he is safeguarding jobs in the US's industrial hotspots.

Harley-Davidson's shares fell as much as 7 percent on Monday, before paring some losses in late trading. But the proposed production shift appeared to mark an unintended effect of US tariffs imposed on European steel and aluminum earlier this month.

The American company Harley-Davidson will move the production of some motorcycles out of the United States to avoid rising costs from tariffs. "There's a lot of irony here, to put it mildly".

The Wisconsin-based motorcycle firm announced on Monday it would shift production of motorcycles intended for European consumers out of the United States, hoping to avoid European Union retaliatory tariffs.

The move conflicts with the Trump administration's touting of the USA economy's strength.

Mr Trump said Harley-Davidson was "waving the white flag".

Trump's global trade war has escalated with various US allies in recent weeks.

According to the company, the EU's new tariffs will increase the cost of a motorcycle shipped from the U.S. to Europe by $2,200.

But rather than hike prices in the US, the company said it would absorb the cost in the short term ― projected to be some $30 million to $45 million through this year― and shift some production to worldwide factories in coming months.

In January, Harley-Davidson announced that it would be closing its plant in Kansas City and moving leftover production to York, Pennsylvania.

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In February 2017, Trump welcomed Harley-Davidson executives to Washington and viewed a number of the company's motorcycles at the White House.

"Thank you, Harley-Davidson, for building things in America", Trump said at the time. Europe is its second-largest market after the U.S.

Harley has been dealing with woes independent of Trump's policies. "We need to hold China accountable for its trade abuses, but that does not need to come at the expense of American workers and businesses". Overseas sales also have been stalling.

It's still unclear where the company would move the work, but Indian observers on Tuesday hoped that their existing Harley-Davidson production hub would see a boost.

According to the company, transitioning production of its bikes intended for Europe will take 9-18 months. The company built its reputation and image by making motorcycles here, and if the company wants to continue to market itself as an iconic American brand both at home and overseas, it needs to focus on USA production.

"Taxes just a Harley excuse - be patient!" he added.

But that status made the company a target for European Union retaliation along with bourbon and blue jeans.

The tariffs will hit home for House Speaker Paul Ryan.

Europe is too important of a market for Harley to neglect. The company already has plants in Australia, Brazil and India, and it will soon open another facility in Thailand.

"We are now assessing the potential impact on our USA facilities", Michael Pflughoeft, a company spokesman, said in an email.

Why did the European Union impose these tariffs?

In the short term, Harley says it will absorb the cost of the tariffs, rather than passing it on to customers. Analysts project the company will earn about US$587m this year on US$5b of revenue.

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