On Tuesday morning, Donald Trump, President of the United States, said this on Twitter:
Tariffs are the greatest!
There are a lot of people who disagree with that. In fact, there are a lot countries who disagree with it, and when I say “a lot of countries” I mean “all countries”.
Part and parcel of Trump’s protectionist push involved what he variously characterized as an effort to revitalize and otherwise bolster American “icons”. “Icons” like Harley-Davidson, whose executives were invited to the White House shortly after the inauguration for what amounted to a photoshoot involving Trump and Mike Pence pretending to be impressed with motorcycles.
“So it’s great to have Harley-Davidson”, Trump said at the event, before praising the company’s management team and employees who he said are “a great, great group of people” that are doing “a fantastic job”. In that regard, they’re like Frederick Douglass.
Fast forward to June 25 and Trump’s love affair with Harley soured like one of his bad marriages.
In a filing with the SEC that day, the company announced that it would be moving some production to Europe in order to retain access to the market amid the U.S.-led trade war. Specifically, the company said the following after detailing just how much money it would lose thanks to retaliatory tariffs:
To address the substantial cost of this tariff burden long-term, Harley-Davidson will be implementing a plan to shift production of motorcycles for EU destinations from the U.S. to its international facilities to avoid the tariff burden.
Trump was furious.
In a series of wild tweets, spanning days, Trump resorted to outright threats, including the following exhortation that effectively amounted to the President insisting that if Harley didn’t rethink its plans, the U.S. government would tax them clean out of business:
In addition, Trump suggested he would actively promote the products of the company’s competitors.
Well, on Tuesday Harley was out with Q2 earnings and there was “good” news. The company now sees EU tariffs costing it $30-35 million for the balance of the year, down from previous estimate of $30-45 million. That, combined with a beat on both the top and bottom lines, has shares up the most since October 2016:
The company also said it sees U.S. steel tariffs costing it $15 million-20 million for remainder of this year.
Is this really “good” news? Obviously not. It’s “good” by comparison, but remember, the $30-45 million figure was just a guesstimate, and the filing linked above clearly indicated as much. Also, the “new” guidance is a range, and you don’t have to be a mathematician to note that the cost for the rest of the year could still fall within the original range and still be consistent with the new guidance.
On top of that, Harley said the new range is down to accelerated shipments of product to the EU prior to the tariffs taking effect, which would certainly seem to suggest that nothing has changed here other than the company hustling up to get out ahead of things.
CFO John Olin says he’s in “constant dialogue” with governments to try and convince everyone to lift tariffs.
Finally, from a common sense perspective, there’s something profoundly silly about pitching bad news as “good” news just because the new bad news is less bad than the old bad news when the time frame you’re talking about is less than two months. This situation is still extremely fluid and unless Trump can strike some kind of deal with European Commission President Jean-Claude Juncker this week, it’s not at all clear that there’s a light at the end of this tunnel.
Whatever happens to Harley, it’s worth noting that Trump would still appreciate it if the company’s workers voted Republican in November.
As the President put it when Harley execs were in Washington last year, “you’re a great, great group of people and thank you for all of the votes you gave me in Wisconsin.”
I’ll leave you with the following from James Pethokoukis…
Remember when protectionism ‘saved’ Harley-Davidson motorcycles in the 1980s?
The 1980s comeback of Harley-Davidson motorcycles is often touted as an example of how active trade policy can help the American economy by “creating a level playing field.” Here’s how The New York Times reported it back in 1983:
In an unusually strong protectionist action, President Reagan today ordered a tenfold increase in tariffs for imported heavyweight motorycles. The impact of Mr. Reagan’s action, which followed the unanimous recommendation of his trade advisers, is effectively limited to Japanese manufacturers, which dominate every sector of the American motorycycle market. The action was exceptional for protecting a single American company, the Harley-Davidson Motor Company of Milwaukee, the sole surviving American maker of motorcycles. The only comparable trade action by this Administration, the President’s decision last May to impose quotas on sugar imports for the first time since 1974, was aimed at an entire industry.
Protectionism can have bipartisan support, and this was certainly the case with the Harley-Davidson action. This from the Clinton White House in 1999: “The Harley-Davidson experience is an example that US trade policy can work.”
But did it? That’s not how Dartmouth University economist and trade expert Douglas Irwin sees things in 2017’s excellent “Clashing Over Commerce: A History of US Trade Policy”: