Drew Angerer/Getty Images President Donald Trump speaks briefly to reporters after greeting Harley Davidson executives on the South Lawn of the White House, February 2, 2017
- US motorcycle company Harley Davidson announced that the company would move some of its production to Europe in response to the trade spat between the European Union and President Donald Trump.
- Harley's move is an example of what economists say will likely be a growing trend: businesses leaving the US due to Trump's tariffs.
- Harley's departure is also particularly embarrassing for Trump, since the president has repeatedly praised the company.
Iconic US motorcycle company Harley Davidson announced Monday that it is moving more of its production to Europe in response to new tariffs, showing the reality of how President Donald Trump's trade fights can backfire.
Harley Davidson said the European Union's new tariffs on US-made motorcycles would drive up costs and force the company to shift a sizeable portion to its production to Europe.
The company said the EU's tariff increase - to 31% from the current 6% - will increase the cost of every motorcycle shipped from the US to Europe by $2,200.
"To address the substantial cost of this tariff burden long-term, Harley-Davidson will be implementing a plan to shift production of motorcycles for EU destinations from the US to its international facilities to avoid the tariff burden," the company said in a regulatory filing. "Harley-Davidson expects ramping-up production in international plants will require incremental investment and could take at least nine to 18 months to be fully complete."
The EU implemented tariffs on just over $3 billion worth of US goods in response to Trump's decision to hit steel and aluminum imports with tariffs.
Harley's move is an example of what economists say will be a significant long-term problem with the tariffs and represents a black eye for Trump's arguments in favor of the measures.
"For Harley to be forced to move production out of the country because of the tariffs is very damaging to Trump's repeated claim that his trade, tax and regulatory policies will get companies to boost their US investments and create good manufacturing jobs," Edward Alden, senior fellow at the Council on Foreign Relations, told Business Insider.
Tariffs increase costs for businesses. And many of Trump's tariffs focus on intermediary goods, or parts, that are then incorporated into finished products. That increases the costs for companies to bring the parts they need into the US to complete their products.
In turn, it also incentivizes firms to move their production abroad, since other countries may have lower tariffs - or no tariffs - on the same intermediate product.
Mary Lovely, a senior fellow at the Peterson Institute for International Economics, and Yang Liang, a graduate associate at the Moynihan Institute of Global Affairs, highlighted the possibility that companies will abandon the US in a recent policy paper.
"Beyond the immediate damage to American competitiveness, trade restrictions push high-technology firms to locate elsewhere in the future," the researchers wrote. "Tariffs can diminish trade flows, but ideas are easily relocated."
Additionally, retaliatory tariffs from the EU, Canada, Mexico, and more make it expensive to get finished goods into those markets. By shifting production closer to the point of sale, businesses can avoid the increased cost to sell in Europe or other countries with restrictions.
Alden said that given those two compelling economic cases, Harley Davidson could be just the start of a series of manufacturing relocations outside the US.
"I think this is only the beginning. Most global trade is still in manufacturing, and the combination of the steel and aluminum tariffs, the coming China tariffs, and the various retaliatory actions are going to increase costs for many manufacturers," Alden said. "I expect many other companies will be forced reluctantly to move production as Harley has done in order to maintain their viability."
In addition to being a possible economic harbinger, the loss of Harley Davidson's production also comes as a symbolic blow to Trump. The president hosted Harley executive at the White House in 2017 and has repeatedly praised the company as a strong homegrown product.
"It is highly visible evidence that even an icon of American manufacturing can be turned against Trump through targeted retaliation," Benn Steil, senior fellow and director of international economics at the Council on Foreign Relations, told Business Insider.