I ride motorcycles. I’m partial to Harley-Davidson motorcycles not only because I’m from Wisconsin, home of the company’s headquarters, but also because I have fond memories of riding my Harley with many friends, when I was a member of Congress, during the annual Rolling Thunder event in Washington to honor military veterans.
I understand Harley-Davidson’s recent decision to move production of its motorcycles for sale in the European Union to plants outside the United States. It wasn’t a surprise – that’s what just about any company would do when faced with a 25 percent tariff imposed by the EU in response to President Trump’s trade agenda. Companies must be nimble or they lose market share, and Europe is Harley-Davidson’s second-largest market after the United States. The tariff would have added an average of more than $2,000 to the cost of a Harley in Europe, no doubt damaging the company’s market share, which is difficult and expensive to regain. Critics, including the president, nonetheless attacked Harley-Davidson for its decision.
Who is right in this debate? A president who says he wants to negotiate better trade deals for everyone, or a company with a business to run but no say in those negotiations? Both sides have a point.
Trump needs to understand that businesses seek the most efficient and cost-effective manner to deliver goods and services. If they sell their products in other countries, they will try to minimize additional taxes to keep prices competitive. That is a basic element of trade.
The United States does not have a formal trade agreement with the EU. Nor does it have one with China. Absent formalized trade agreements, trade deficits are significantly likelier to occur in countries with more-open markets, as in the United States. Reaching a trade agreement with the EU, instead of getting into a tariff war, would address Trump’s overriding concern about trade deficits – and would be good for companies such as Harley-Davidson. But it should be noted that, broadly speaking, there really is nothing wrong with trade deficits. They send a signal that consumers like both products and pricing. They’re also evidence of superior purchasing power – testimony to America’s affluence and size. Yet some smaller, less affluent countries, including Canada, purchase more goods and services from us than we do from them. (Contrary to the president’s deficit complaints, the U.S. Trade Representative reported a trade surplus of $8.4 billion with Canada in 2017.)
Yes, trade agreements produce a mix of winners and some losers. In the aggregate, each side wants more wins than losses. That’s how it works. The fact that some industries in the United States have had losses in past trade agreements has made many people, including the president, skeptical about the quality of those agreements.
But the United States overall has mostly been a big winner. As Bloomberg News noted in May, U.S. manufacturing output, in inflation-adjusted terms, “is more than twice what it was back in 1979, when manufacturing employment peaked.”
Sure, there are fewer manufacturing jobs today, but that’s mostly caused by automation and American ingenuity, not losses to foreign competition. In today’s hot U.S. economy, a shortage of workers, not unemployment, is the problem.
Trump campaigned on fixing bad trade agreements. He focused especially on the trade deficit with China. In the past and continuing to this day, China has cheated in the marketplace by dumping products such as paper, steel and solar panels on the U.S. market to drive down prices and put competitors out of business. The president’s efforts to persuade China to change its practices are justifiable.
The Harley-Davidson matter is altogether different. It’s a self-inflicted wound. Tariffs prompt retaliatory tariffs, and they serve only to tax consumers. The company has been manufacturing motorcycles in the United States for more than a century, and riders around the world understandably want to ride these enjoyable machines. Should Harley-Davidson have waited to see what would result from trade negotiations, hoping tariffs would be abandoned? Not many businesses would. The one thing I know for sure is businesspeople want two things: certainty and low taxes. No one, including Trump, should demonize a company for taking steps to secure its own future.
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