Harley-Davidson’s Big, Fat Mistake

By | 2018-06-30T15:47:37+00:00 June 28th, 2018|
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Harley-Davidson on Monday announced that it would move production for its European customers overseas, in order to avoid the European Union’s (EU) new import duties. President Trump slammed the move and accused the company of raising the “white flag” of economic surrender on Twitter.

Trump is right. Harley-Davidson’s decision is perhaps the most incompetent public relations blunder since Starbucks said it would replace 10,000 American workers with Syrian refugees—no doubt they will pay a heavy price.

In the meantime, Harley’s loss is our gain, as every individual failure makes the whole stronger.

A Bittersweet Vindication
Before beginning, let’s get some preliminary facts straight. In 2017, Harley-Davidson sold around 40,000 new motorcycles in Europe. And although Europe is Harley’s second largest market, it still accounts for a mere 16 percent of the company’s global sales—Harley is an American company with a predominantly American market. Furthermore, Harleys are (mostly) American-made.

Regarding the tariffs: on June 22 the EU’s new 25 percent import duties came into effect. These were levied in response to President Trump’s own tariffs—apparently, the EU forgot it already imposes significant tariffs, and other nonmonetary import restrictions, on American goods.

Harley estimates that these tariffs will raise the price of their European bikes by an average of $2,200. Assuming that this will hurt their sales, they announced that they will offshore a fraction of their production to Europe—not their entire production-base, as some distortion-artists claim. Now that we’re all on the same page, let’s proceed.

The first point worth mentioning is obvious: Harley’s announcement proves tariffs work. By raising the cost of importing American motorcycles, EU tariffs created a powerful incentive for Harley-Davidson to invest in Europe. They responded to this incentive. Now Europe will have its own slice of Harley’s pie—and benefit from the capital investment, jobs, and technical know-how that Harley will bring with them. Imagine that.

Of course, the free trade brigade will doubtlessly rant about how Trump’s “trade war” harmed America by driving Harley-Davidson abroad. In this instance, I’d agree. Wars have casualties—even trade wars. But let’s not miss the forest for the trees: Trump’s tariffs will benefit far more American companies than they hurt, and will thereby create more jobs than they destroy.

There are two reasons for this. First, because labor-intensive (or what sophists term “inefficient”) jobs are the first to move offshore, international trade necessarily destroys more jobs than it creates. For example, a 2014 study by Robert Scott found that the North American Free Trade Agreement (NAFTA) displaced a net 851,700 American jobs—the exact opposite of what Bill Clinton claimed.

Note: this paradigm is reversed when America freely trades with higher-cost jurisdictions, like Europe. The only reason European industries are not pouring into America (like ours pour into China) is because of Europe’s tariff wall. Were Europe to adopt an American-style trade regime, they would deindustrialize within a decade.

The second reason that Trump’s tariffs will create more jobs than they will destroy is that America is a net importer (this is reflected in America’s large, chronic trade deficit). Thus, far more American production is displaced abroad than vice versa. Further, America has a trade deficit in advanced industries—those technology-generating sectors that drive long-run economic growth. Repatriating these industries alone would make Trump’s tariffs worth it.

Short-Term Gain, Long-Term Pain
Harley-Davidson made a spectacular error in announcing their intention to offshore a portion of their production to Europe. That this is a mistake should be prima facie obvious to anyone with a lick of common sense—but perhaps it’s not obvious to the alumni of the Harvard School of Business or the Chicago School of Economics who seem to keep screwing up in the same way. So let me lay it out for their benefit:

Europeans don’t buy Harley’s because they want a cost-effective, fuel-efficient means of transportation to take them safely (read: blandly) from point-A to point-B—they want a hog. Harley’s aren’t just bikes. They embody American muscle, sweat, and steel.

They’re strong. Loud. Bold.

They’re a classic piece of Americana.

Frankly, Europeans don’t really care about the price. After all, they’re not buying a bike—they’re buying a brand. Harley’s are status symbols, just like Gucci bags or Lamborghinis. An extra $2,200 per bike isn’t going to turn away droves of customers. It’s going to make Harleys even more exclusive, and possibly more profitable.

Harley should embrace the opportunity Trump gave them: don’t settle to be Europe’s mass-market motorcycle producer. Be something greater. Be a luxury—if Europeans want Harleys, make them pay.

By relocating to Europe, Harley is simply ticking off their loyal (overwhelmingly Trump-supporting) customers. In the end, they stand to lose more American business than they’ll gain in Europe. After all, how many limp-wristed Democrats buy hogs?

Photo credit:  Drew Angerer/Getty Images

About the Author:

Spencer P. Morrison
Spencer P. Morrison is a writer and author of Bobbins, Not Gold. He is the editor-in-chief of the National Economics Editorial. Follow him on Twitter @SPMorrison_.