Harley-Davidson Shows Why Corporations Cannot Keep Silent in Trade Wars

Posted June 25, 2018 3:55 p.m. EDT

Corporate America has largely avoided sticking its head over the parapet in the trade war. That’s going to become harder as the bellicose rhetoric transforms into action.

Case in point Harley-Davidson: The company Monday announced it’s planning to shift some production out of the United States to lessen the cost of tariffs that the European Union imposed in response to those put in place by the Trump administration.

Harley-Davidson’s move reveals the uncomfortable choices companies face as they navigate escalating trade tensions. The company, by making more motorcycles beyond its U.S. factories, could draw criticism from President Donald Trump and his supporters. But if Harley-Davidson does not adapt to the rising trade barriers, it stands to sell fewer motorcycles, which could harm its profits.

So far, large companies have mostly left it to their trade groups to speak out against Trump’s trade policies. But when financial pain threatens to become consequential, public companies are obliged to publicly quantify it. Almost by default, then, they are forced to enter the fight. And as more companies do what Harley-Davidson did, the debate over trade wars will focus on the nitty-gritty.

The EU last week raised tariffs on Harley-Davidson motorcycles to 31 percent from 6 percent. The company said the increase would add $2,200 on average to the cost of a motorcycle exported to Europe from the United States. Harley-Davidson said it would not raise the suggested prices of its motorcycles to cover the cost of the tariffs. It expects, at least for a little while, to bear the additional expense of the tariffs itself, which would cost the company an estimated $90 million to $100 million a year. Over the longer term, Harley-Davidson, based in Milwaukee, Wisconsin, intends to make more motorcycles in countries that are not subject to the tariffs. That plan could take nine to 18 months to put into effect, the company said.

A year ago Trump lauded the firm for manufacturing in the United States. “We’re proud of you! Made in America, Harley-Davidson,” he said, when executives from the company drove motorcycles onto the White House lawn.

Harley-Davidson’s announcement may make it more likely that Trump imposes tariffs on European cars, to further pressure the EU to make trade concessions. But such actions may invite more retaliation from the bloc, and, in turn, more of the sorts of announcements that Harley-Davidson made. The administration may hope that the strong U.S. economy will allow U.S. companies to better weather the trade battles — and that other countries will ultimately cave because they cannot afford to lose access to the U.S. market.

Still, negative corporate announcements bring a jarring specificity to trade wars that can spread through financial markets and the wider economy. Harley-Davidson’s stock was down over 7 percent Monday. The S&P 500 was down 1.8 percent. The benchmark is now only up 1.1 percent since the end of 2017 and down 5.9 percent from its all-time high. The trade war appears to have halted the Trump rally. And there are a lot more Harley-Davidsons on the stock market.