June 25
The Wall Street Journal says the U.S. casualties of Donald Trump’s trade war are starting to mount:
Donald Trump’s trade war has been an abstraction for most Americans so far, but the retaliation has now begun in earnest and the casualties are starting to mount. The President’s beloved stock market took another header Monday on news of more restrictions on investment into the U.S., and the Dow Jones Industrial Average is now down for 2018. But the biggest losers Monday were the American workers who make Harley-Davidson motorcycles whose jobs will soon be headed overseas thanks to the Trump tariffs.
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Last year Mr. Trump commended Harley-Davidson for “building things in America,” calling the company “a true American icon, one of the greats.” And he proclaimed last week at a rally in Duluth, Minnesota, “We’re bringing back our jobs from other countries.” Awkward timing, Mr. President. On Monday the motorcycle company announced it will shift more production out of the United States.
U.S. motorcycle sales have been on the decline, so Harley has kept its rubber side down by focusing on global growth. The company considers the EU a “critical market,” and last year it sold nearly 40,000 bikes to European consumers. But in retaliation for Mr. Trump’s steel and aluminum tariffs, the European Union raised its tax on American-exported Harleys to 31% from 6%, effective last Friday. That amounts to a $2,200 tax on each motorcycle exported from the U.S. to the EU.
In a Securities and Exchange Commission filing Monday, Harley said “the tremendous cost increase, if passed on to its dealers and retail customers, would have an immediate and lasting detrimental impact to its business in the region, reducing customer access to Harley-Davidson products and negatively impacting the sustainability of its dealers’ businesses.” Translation for Mr. Trump: Unlike real estate, cars and motorcycles are a global market.
Harley has opted not to raise prices, instead bearing the $90 million to $100 million annual cost of the tariffs in the short term. To avoid those trade penalties in the long term, Harley will scale back U.S. operations over the next 18 months, making more bikes overseas.
Harley hasn’t provided details about how its American workforce will be affected. But Harley employs more than a thousand unionized U.S. steelworkers — the very folks the President claims he’s protecting. Harley’s main manufacturing facilities are in Wisconsin and Pennsylvania, and Mr. Trump has said the “big league” support of Harley employees helped him win the swing states in 2016.
The only response White House press secretary Sarah Sanders could muster on Monday to the Harley news is that “the European Union is trying to punish U.S. workers by engaging in unfair trade practices.” But the Harley harm is made in America — that is, the White House.
Mr. Trump threw the first punch with his steel and aluminum tariffs, which have already driven up the cost of Harley’s raw materials by $15 million to $20 million this year, CFO John Olin said in an April earnings call. Mr. Trump also killed the Trans-Pacific Partnership, which would have cut tariffs on American-made motorcycles. U.S. withdrawal forced Harley to pursue its “Plan B” and build a plant in Thailand to avoid Asian tariffs.
“We would rather not make the investment in that facility, but that’s what’s necessary to access a very important market,” CEO Matt Levatich told Bloomberg in April. Meanwhile, the company will close its 800-worker Kansas City, Missouri, plant by 2019. Harley will expand operations in York, Pennsylvania, but the result is still a net loss in American jobs.
The protectionist pain isn’t limited to Harley. Mid-Continent Nail of Poplar Bluff, Missouri, makes about half of the nails produced in America. But Mexican steel wire is the company’s main input, and it’s now subject to a 25% tariff. Mid-Continent tried passing that added cost to consumers, but purchases plummeted and buyers cancelled existing orders, opting for cheaper Chinese nails. The company has already cut 60 employees from its workforce of 500, and it will likely soon lay off 200 more. It’s now pinning its hopes on a tariff exemption from the Commerce Department, which is grappling with a backlog of 21,000 similar petitions.
The list of job casualties will continue to grow. A June report by the economic consulting firm Trade Partnerships Worldwide estimates a net loss of 400,445 jobs over the next three years because of the steel and aluminum tariffs, quotas and retaliation. That’s 16 jobs lost for each steel or aluminum job gained.
The damage is likely to have political consequences, as the retaliatory tariffs target industries in swing states. Wisconsin produces more than 90% of America’s ginseng, and 95% of that comes from Marathon County. The county went for Mr. Trump in 2016, but it’s now wrestling with the consequences of China’s new 15% retaliatory tariff. Mr. Trump is also going to have some explaining to do to Wisconsin cranberry farmers, Florida orange-juice producers, and Iowa soy and corn growers.
Good luck to Republicans running on the Trump tariffs in November.
Online: https://www.wsj.com
