Harley-Davidson hitting the road a black eye for Donald Trump3 min read . Updated: 26 Jun 2018, 07:37 PM IST
US President Donald Trump last year thanked Harley-Davidson for 'building things in America'
As one Trump administration trade policy backfires, another looks set to.
On Monday, Harley-Davidson Inc. said it would shift some production out of the US in order to mitigate the impact of European Union tariffs targeting its motorcycles. Those penalties — which Harley-Davidson estimates may cost it as much as $100 million annually — were in response to US levies on steel and aluminium imported from the EU. Meanwhile, the Treasury Department is reportedly planning to aim a bazooka at a Chinese takeover problem that doesn’t really exist anymore by declaring a national economic emergency. What’s more troubling is a reported plan to crack down on exports of key US technologies.
That Harley-Davidson is among the first out of the gate with a warning on higher costs is a black eye for President Donald Trump, who last year thanked the company for “building things in America." House Speaker Paul Ryan also travelled to a Harley-Davidson plant in his home state of Wisconsin to tout the benefits of the tax overhaul. EU lawmakers clearly knew what they were doing when they announced surgical counter-tariffs on American products. Keep an eye on manufacturers of blue jeans, peanut butter and bourbon.
Harley-Davidson wasn’t perhaps the best exemplar of American manufacturing for either Trump or Ryan to hold up in the first place. It already operates facilities in Brazil and India and is building a plant in Thailand, partly in response to Trump’s decision to pull out of the Trans-Pacific Partnership. Not for nothing, Harley-Davidson this year announced plans to close an assembly plant in Kansas City, Missouri, and consolidate its operations with a Pennsylvania facility. A net total of 350 jobs will be eliminated in the US, the company said in May, and the shutdown is also triggering layoffs at suppliers.
Regardless, Harley-Davidson’s situation is symbolic of the kind of disruption threatened by the Trump administration’s protectionist agenda. General Electric Co. is also reportedly exploring changes to its supply chain as it grapples with tariffs on parts that are produced at company-owned factories in China but shipped back to US assembly facilities in places like Florence, South Carolina, and Waukesha, Wisconsin. These ripple effects are important to keep in mind as Trump turns his attention to barring Chinese investments in the US and countering the country’s efforts to bolster its own industrial prowess, often on the back of American technology.
In many ways, the Trump administration is simply crystallizing an already tough attitude toward Chinese investment. Congress is concurrently advancing a bill to bolster the powers of the Committee on Foreign Investment in the US, which reviews deals for national security risks.
After a spate of rejected takeovers and an unprecedented decision to recommend against Broadcom Inc.’s bid for Qualcomm Inc. board seats, one could argue CFIUS scrutiny has already been increased and expanded in practice. The number of US takeovers by Chinese firms has slowed to a trickle, even as dealmaking more broadly booms. Investments and joint venture activity is also lagging.
What makes this push different is the potential invocation of a little-used economic emergency law that gives the administration broad jurisdiction to enact penalties. That makes the purported effort to prevent the export of technologies considered key to China’s made-in-2025 initiatives all the more scary for US companies. It’s unclear exactly how this policy would work (Treasury Secretary Steven Mnuchin pushed back at early reports), and it may be primarily aimed at further limiting the sharing of technology with Chinese joint venture partners. But as we’ve seen with the steel and aluminum tariffs, the Trump administration isn’t inclined to surgical strikes. A broad approach could put a wide swath of US manufacturers at risk.
Aerospace is part of China’s investment push, so what does that mean for Boeing Co. as it competes with Airbus SE for share in what’s set to be the world’s biggest civil aviation market? Shares of the company were down about 3% as of midday in New York on Monday. Will Qualcomm be caught in a double-whammy of being banned by Chinese regulators from buying NXP Semiconductors NV and banned by US regulators from selling some semiconductor products in China?
The opportunities for painful side effects are numerous, and the blowback to US companies is just starting.