Harley-Davidson Is a Reminder That Protectionists Just Dig Holes
Ever had the experience of realizing that one leg of a three-legged stool is too long, and needs to be pared? Then you shave it down, and it’s too short, so the other two need to be pared? Pretty soon, you have no stool. That is one of the biggest problems with protectionism. It soon becomes a vicious cycle, with protectionists forced to self-inflict more damage in a futile attempt to repair the setbacks they had already wrought on the economy.
President Trump demonstrated that again Tuesday with an early morning tweet complaining about the negative impact his own tariffs (otherwise known as taxes) have had on Harley-Davidson. Doubling down, he is now threatening to impose more of the same taxes that undermined Harley in the first place.
Quoting a - newscaster, Trump tweeted: “Harley-Davidson has struggled with the EU, currently paying 31 percent. They’ve had to move production overseas to try and offset some of that. Tariffs, which they have been hit with will rise to 66 percent in June of 2021.”
But the EU tariffs are retaliatory tariffs. They are a response to a U.S tariff that Trump imposed. Typically, protectionist actions soon become a series of mistakes, with each new one caused by the last. Do Americans want to make another costly error?
Let’s start by stipulating that Harley-Davidson is doing quite well. Early morning trading on Tuesday showed its share price up, based on the fact it actually topped estimates for the first quarter. But it did so largely because of “anticipation of potential tariff relief,” explains Stifel analyst David Crum. Investors are holding or buying Harley-Davidson shares in the hope that Trump’s trade policies will be reversed. Threatening to double down on them will only undermine the stock, and the economy as a whole. Actually doing so will be even worse.
A little history is in order. Trump’s resort to higher and higher tariffs even as they drive down trade and the marketplace is very much in character. In a tweet last December, he proudly proclaimed: “I am a tariff man.” But what have tariffs resulted in thus far?
A Federal Reserve Board researcher working with two economists fro the University of Chicago has found that tariffs imposed by Trump last year on imported washing machines had raised their cost by about $100 on average. Only 1800 jobs have been saved - at a cost of over $800,000 a job. Two studies have found that Trump’s tariffs on some $250 billion on imports from China had cost U.S consumers and companies billions of dollars.
Regarding Harley-Davidson, the costs of Trump’s trade war have piled up. Earlier this year, the company said the retaliatory duties imposed by the EU on its bikes would cost Harley between $100 million and $120 million in 2019. At the same time, China’s tariffs on bikes have increased to 55 percent from 30 percent as a result if that theatre if the trade war. The Wisconsin-based bike company has already announced plans to open a new plant in Asia, partly to escape the punitive retaliatory tariffs.
Do Americans really want to see what further damage additional tariffs will cause?
It’s often been said that if you find yourself in a hole, stop digging. Trump’s trade protectionism is a deep hole - for American companies, workers and consumers. Isn’t it time to put the tariff shovel away?
