Harley-Davidson responds to EU tariffs

Harley-Davidson is shifting some production of motorcycles for European customers out of the United States to avoid EU retaliatory tariffs. CNNMoney's Paul R. La Monica reports.

Posted: Jun 26, 2018 6:03 AM
Updated: Jun 26, 2018 6:08 AM

President Donald Trump's trade policy is backfiring on Harley-Davidson.

The company is shifting some production of motorcycles for European customers out of the United States to avoid EU retaliatory tariffs.

Harley-Davidson's move is some of the most direct evidence yet that tit-for-tat trade fights between the United States and other countries have consequences for American companies. Harley-Davidson said it stood to lose as much as $100 million a year.

"Increasing international production to alleviate the EU tariff burden is not the company's preference, but represents the only sustainable option," it said in a regulatory filing on Monday. Harley-Davidson's stock tumbled 6%.

Related: Trade war fears spread to tech and Dow sheds 328 points

In an afternoon tweet, Trump said he was surprised "that Harley-Davidson, of all companies, would be the first to wave the White Flag."

"Taxes just a Harley excuse - be patient!" he wrote.

The EU began imposing tariffs Friday on $3.2 billion worth of American goods, including motorcycles, orange juice, bourbon, peanut butter, motorboats, cigarettes and denim. They are a response to the Trump administration's tariffs on steel and aluminum imports from Europe.

Related: Trump's tariff fight could hurt the red states that support him

For motorcycles, the European bloc raised its 6% tariff to 31%. That will make each bike about $2,200 more expensive to export, Harley-Davidson said.

The company is not raising bike prices for customers or retailers.

"The tremendous cost increase, if passed onto its dealers and retail customers, would have an immediate and lasting detrimental impact to its business in the region," the company said.

Instead, it will eat $30 million to $45 million for the rest of this year and $90 to $100 million annually.

Related: Chinese tech investment is next target in Trump's crackdown

The company did not say whether any jobs are at risk. Harley-Davidson, based in Milwaukee, employs more than 6,000 people globally. Spokesperson Michael Pflughoeft said the company was "assessing the potential impact" on jobs.

It makes most of its motorcycles in the United States, at plants in Wisconsin, Pennsylvania, and Missouri.

Europe is its second-largest market behind the United States. In 2017, nearly 40,000 European customers bought new Harleys, compared with about 148,000 in the United States.

Europe is becoming more important to the company as US sales slump. Harley-Davidson's US bike revenue dropped 8.5% last year from 2016, but only fell 0.4% in Europe.

Related: How Europe could fight back if Trump taxes car imports

In January, the company said it was closing a factory in Kansas City, Missouri, and consolidating it into a York, Pennsylvania, assembly plant.

Harley-Davidson opened plants in India and Brazil in recent years and is opening another in Thailand this year.

Related: India gives Harley-Davidson a pass

Joe Capra, a spokesperson for the International Association of Machinists and Aerospace Workers and its 425 union workers at the Kansas City plant, said Monday's decision did not surprise him.

Capra said Harley-Davidson has not told its Kansas City workers whether the announcement will speed planned layoffs, which are scheduled to begin in August.

—CNNMoney's Ivana Kottasová contributed to this story.

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