Harley-Davidson shows Trump’s trade fantasies at odds with reality

When Harley-Davidson announced that it would shift some production out of the United States as a result of Europe’s new retaliatory tariffs, President Trump responded in a typically bombastic way, accusing Harley-Davidson of waving a “white flag” and declaring: “A Harley-Davidson should never be built in another country-never!”

Harley-Davidson’s announcement made clear that they are not moving production back to Europe. Throughout the 1960s and ’70s, through a Swiss-incorporated joint-venture based in Italy, Harley competed with British exports of motorcycles to the U.S. by taking advantage of cheap Italian labor and low American import tariffs. 

{mosads}Today, facing retaliation for Trump’s steel and aluminum tariffs, Harley will move as of yet unspecified production lines and jobs to one of its already existing production facilities in India, Brazil or a planned one in Thailand.

This move will allow access to local markets and lower tariffs on imports into the European market, a strategy reminiscent of its earlier one.

Harley’s quick response to Trump’s tariffs demonstrates that the global trading system is not a lightbulb that can be turned off and on.

Even though the unfair distributional consequences of trade are very real — trade globalization has fostered the destruction of jobs in industries susceptible to offshoring and international labor competition — this does not mean that these problems can be remedied through tariffs.

Ask Britain, as it tries to unwind itself from the EU, about what it takes to change an economy oriented toward international production to one where production takes place only at home.

New data from the Bureau of Economic Analysis suggest how interdependent the U.S. economy has become with world markets. Majority foreign-owned affiliates of multinationals contributed roughly $870 billion to U.S. GDP in 2014, while also providing approximately 5 percent of all private-sector U.S. jobs.

Other data shows that 43 percent of all U.S. imports are intermediate goods to be used in domestic production, some for eventual re-export.

Over half of Chinese exports are produced from firms receiving foreign investments, roughly $0.55 of every dollar U.S. consumers spend on imports from China goes to U.S. transporters, wholesalers and retailers.

Each of these measures show the economic significance of the global production system. Trump’s mercantilist fantasy is at odds with this reality, and the opportunities to make it work better for working Americans.

Still, there is truth to President Trump’s tweets suggesting Harley-Davidson’s moves were already in the works. But Trump’s tariff war isn’t stopping as much as accelerating those plans. Harley’s international sales are currently about 40 percent of total, and they aim increase that to 50 percent by 2027.

Doing so requires taking strategic advantage of local labor markets, navigating high tariffs here and abroad, as well as opportunities provided by free-trade agreements. Harley’s facility in Thailand, for instance, will allow it to tap Southeast Asian markets with minimal trade barriers.

Protectionist tariffs will not change the realities of global markets, at least not immediately and without massive dislocation of corporate strategy and supply chains and ultimately jobs and pocketbooks.

What then should be done? Trump’s vision for muscular American mercantilism relies on mystification about the real conditions shaping work and income.

He makes politics of steel tariffs personal rather than systemic, about Harley-Davidson’s lack of fealty to his presidency and about yet another nefarious betrayal of “real” Americans by corporate globalists. But, Harley-Davidson like any firm, responds to market incentives, and those increasingly cross international borders.

Trade globalization does not inherently create a fair economy. But, neither is it inevitable that free trade creates as much unfairness as it has in the United States. The critical factors, however, aren’t trade rules or tariffs as much as social policy.

If the goal is to improve the living standards of working Americans, then trade is important for generating economic growth, and tariffs wars are counter-productive. But dealing with the distributional consequences of trade requires a different set of policy tools.

Tax policy, labor market regulation, a reformed financial sector and stronger social safety nets all have much more direct impact on well-being than trade policy.

But these tools appear antithetical to Trump’s agenda, which is why in the end, despite whatever angry tweeting or sloganeering he offers, he will in fact fail to make American great again for working Americans.