Harley ditches Trump as trade war comes home to bite PDF Print E-mail
Wednesday, 27 June 2018 03:55
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The company whose interests the US president kept pushing is now talking of shifting plants to EU due to trade war


A few months ago, US president Donald Trump was tweeting about how “trade wars are good, and easy to win”. When the US was “down $100 billion with a certain country”, he said, by way of explanation, “don’t trade anymore—we win big. It’s easy”! Except, as Trump and his supporters are finding, in an interconnected world, it’s not really that easy. If the $100 billion of extra imports into the US comprised, say, just wine and cheese, that would be one thing, though domestic consumers would protest the hike in prices following the imposition of import duties—that is why, even at the height of Chinese mercantilism, the US didn’t do much as it would have jacked up prices of everyday goods that Americans bought at a Walmart. But, when the $100 billion comprises industrial inputs, the ramifications can be quite different because US manufacturers find themselves getting less competitive as their inputs start costing more. At a hearing by a committee of the US Trade Representative last month, WSJ reported a representative of GE talking about how import tariffs may not sway Chinese decision-makers, but would hurt US companies that owned facilities in China as well as US workers who relied on these imports to make products for both the US market as well as exports. Roughly a fifth of the circuit boards and other components for GE’s scanners, WSJ reported, are imported from China.

Things get worse when other countries impose retaliatory tariffs. President Trump made headlines when he talked of, for instance, how India was charging exorbitant import tariffs on Harley Davidson motorcycles, and though Harley wasn’t protesting, he was going to fix it. Harley may not have protested because, as it turned out, Trump had been badly briefed. And, with the EU slapping high retaliatory tariffs on Harley imports from the US, the company is bleeding. Around 16-17% of its sales come from the EU and, according to a regulatory filing by the company, the trade war could cost it as much as $100 million and raise costs by around $2,200 per motorcycle shipped to Europe and, as a result, it has said “increasing international production to alleviate the EU tariff burden… represents the only sustainable option to make its motorcycles accessible to customers in the EU”. While Trump felt his import tariffs on European cars would force manufacturers to relocate facilities to the US, Harley is talking of doing the same. Not surprisingly, Trump tweeted, “Surprised that Harley-Davidson, of all companies, would be the first to wave the White Flag… I fought hard for them”.

As economics nobel laureate Paul Krugman points out, 10 million US jobs are based on exports of goods and services and, in the event of an all-out trade war, these are likely to get hit. And, to the extent that these jobs are concentrated in certain towns, this would have a multiplier effect since service jobs would also be lost. Naturally, this is not going to happen overnight—a GE, for instance, may want to shift to China to lower its tariff burden, but, a supply-chain revamp is complicated and takes time; even in the short run, however, lower profits for US firms like GE will mean lower investment levels. A cessation of hostilities may end up containing the damage, while a long-drawn trade war will hit the US in a big way—whether the Chinese or the Europeans get hurt more is then of academic importance. If trade competitors don’t blink first, and there is little evidence of that right now, president Trump’s advisors will need to work full-time to extricate the world from the mess he has created.



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