A year later, the realities of global economics and the president’s trade policies have resulted in a very different message from Trump. Three of his five trade-related tweets Tuesday morning mentioned Harley. But the company’s announcement, which was made Monday in a regulatory filing, was partly due to the trade dispute Trump himself sparked earlier this month. When the Trump administration announced levies on European steel and aluminum imports, the European Union responded with retaliatory measures—in Harley’s case, the company said EU tariffs would add more than $2,000, on average, to the cost of each a motorcycle exported to Europe. And yet the deeper reason for Harley’s decision is that, despite the presidential imprimatur of a storied “Aura” about the brand, Harley, and indeed most other motorcycle makers, have seen steadily declining sales. Europe had offered Harley a rare bit of good news.
Until the tariffs. The EU’s retaliatory tariffs, which are worth $3.2 billion, specifically targeted bourbon, peanut butter, and Harley’s motorcycles, among other things—items that are, not coincidentally, made in Republican-controlled districts of the United States. Making its motorcycles in Europe would allow Harley to avoid the tariffs incurred through export and keep the profit it earns on each motorcycle sold. But tariffs aside, there are deeper forces driving Harley’s long term reorientation, one chief among them: evolving consumer tastes.
Thinking of Harley as an iconic American brand is tempting (just as it is tempting to blame Trump’s tariffs for the company’s decisions). But Harley is first and foremost a publicly traded firm that is answerable to its shareholders. This compels the company’s management to choose the optimal path to maximize profits and minimize costs—even if it comes at the expense of its workers. Despite steadily declining sales, about 61 percent of Harley’s sales are in the U.S. It makes sense for the company to domestically build all the bikes destined for its biggest market. But Europe is Harley’s second-biggest market, and accounts for 16 percent of all the motorcycles it sells. EU import tariffs hurt its bottom line there. And the only way to avoid them is to avoid exporting to Europe—to build locally.
Free-trade agreements were supposed to take care of problems like this. The U.S. had been negotiating the Transatlantic Trade and Investment Partnership with the EU that would have eliminated many—if not most—trade barriers between the U.S. and Europe. In Harley’s case this would mean there would be no particular cost advantage to moving a plant to Europe, since building in the U.S. and exporting to the EU would be effectively free. But Trump is hostile to multilateral trading agreements like this, and the status of T-TIP, as the agreement is known, is unclear. The president’s decision to withdraw from the Trans-Pacific Partnership agreement, another large trade agreement encompassing countries on both sides of the Pacific, meanwhile was cited as one reason for Harley’s decision to build a manufacturing plant in Thailand. The reasoning was similar to that behind the proposed Europe move: The company wanted to offset Asian tariffs on its products in what the company’s CEO described as a “critical” market. (It moved operations from a plant it shuttered in Kansas City.)