You can’t condemn a company for responding logically to economic conditions that you yourself created. Not unless you’re Donald Trump, and the company is Harley-Davidson.
As you probably recall, tariffs imposed unilaterally by Trump have raised the cost of steel by as much as 25 percent. With its top-end bikes weighing in at 900 pounds each, Harley-Davidson uses a lot of steel in its product.
Also, in retaliation for those steel tariffs, the European Union has raised its tariff on imported U.S.-made motorcycles from the previous 6 percent to 31 percent, thus raising the retail cost of an imported Harley by some $2,200 per unit. The EU didn’t say it was aiming at Harley-Davidson specifically with that tariff, but an iconic American company that’s a favorite of the U.S. president would sure be an appealing target for someone wanting to make a point.
For Harley, that constitutes a double-whammy: A high tax on steel, its main raw material, and a high tax on its finished product sold overseas.
Now add a third factor: Domestic Harley sales are falling.
In 2017, they sold 20,000 fewer motorcycles in the U.S. market than they did in 2015, even though the overall economy is pretty strong. That’s because the Harley demographic, much like the Republican demographic, is aging rapidly and not being replaced. That doesn’t bode well for the company’s long-term survival.
On the other hand, Harley sales in Europe have been holding steady and even growing a little. So if you’re a Harley executive, looking at your company’s future and at the impact of Trump’s tariffs, you really don’t have much of a choice: You’re going to move some production overseas, where you have a growing market and where you can sidestep both ends of Trump’s tariff double-whammy. That’s simple capitalism -- companies responding to economic signals sent by the market and government to maximize their profits.
But when Harley-Davidson announced that very move this week, Trump responded with a characteristic conniption fit:
To be fair, Trump has taken some steps that will help Harley-Davidson’s bottom line, if not its American workforce. Massive corporate tax cuts passed earlier this year are expected to add some $2 trillion to the national debt over the next decade, which in turn has led to conservative demands that Medicare and other entitlements be cut. But in the case of Harley-Davidson, those tax cuts are adding $100 million to the company’s after-tax profit this year.
During debate leading up to passage of the tax cut, critics warned that companies would use most of the money for stock buybacks and higher dividends that would further enrich investors but do little for workers (Note: The richest 20 percent of Americans own 90 percent of stock). Trump and congressional Republicans disagreed, claiming the money would be reinvested to create American jobs and raise American wages, with 70 percent of the tax-cut benefits going to workers.
So far, the critics are being proved right, and Trump is being proved wrong.
According to the Bureau of Labor Statistics, real hourly wages -- which means wages adjusted for inflation -- were actually down slightly in May compared to a year earlier, while stock buybacks hit a record high in the first quarter. The Swiss bank UBS predicts that stock buybacks this year will reach $2.5 trillion, a $1 trillion jump over the previous record.
Indeed, one month after Trump signed the tax bill, Harley-Davidson announced the closure of its Kansas City plant, with 800 jobs. Four days after the closure announcement, it announced a stock buyback of $700 million, plus a dividend increase, funded in part by the Trump tax cut.
And when it does expand its overseas production, including a new factory being built in Thailand, Harley-Davidson will pay much lower taxes on its overseas profits, again to the benefit of stockholders and at harm to U.S. workers, and again thanks to the man complaining most vociferously about it.