In every war, there are countless battles and indirect casualties you don’t expect at the outset. You might say the Trump administration got its first when EU officials announced a 31% tariff on Harley-Davidson motorcycles and other products.
As a result, Harley executives announced they would move some production out of the U.S. to avoid raising prices. While that represents a loss for U.S. manufacturing, EU officials are calling it a win in the escalating trade war.
Bruno Le Maire, France’s finance minister, told reporters it was the type of outcome the EU welcomed. “Whatever allows jobs to be created in Europe goes in the right direction,” Le Maire said, according to Reuters. “We don’t want a trade war, but we will defend ourselves.”
If the U.S. hits Europe, the EU ‘will respond again.’
Le Maire was clear that Harley-Davidson would not be the only U.S. company hurt by Trump’s trade war.
“If the United States hits us again with a 20 percent increase on cars, we will respond again,” he said. “We don’t want an escalation, but we are the ones being attacked.”
Just the threat of another escalation sent U.S. companies’ stock prices down in recent weeks. However, the list will surely grow the EU made a move on American automakers.
That would appear to be the response if Trump followed through with a threatened 20% tax on EU imports.
U.S. automakers face major risks.
As you can see from browsing the most American-made cars of 2018, it takes more than a Detroit brand name to rank as domestic. Honda had three vehicles in the top six, and the automaker’s luxury brand (Acura) claimed No. 7.
An analysis by Bloomberg showed tariffs on automobiles would hurt Toyota most, but American companies would suffer mightily as well. At least 750,000 Chevrolet models would count as “imports” under this plan. In Ford’s case, at least 450,000 cars would receive that label in 2018.
Should EU tariffs force price hikes, U.S. auto workers would start to see their jobs at domestic factories disappear. Detroit’s top automakers would either have to move production overseas or raise prices.
What auto workers and investors stand to lose
Even in the best-case scenario for shifts like Harley-Davidson will make, the company stands to suffer when it comes to efficiency. Lapses in foreign plants will be part of the package.
Down the line, that will lead to smaller profit margins and the need for more cuts. As we saw in the months following the GOP tax plan passing, stock prices drove decision-making among the executive class.
That’s how Kansas City got its first bit of bad news — its Harley factory will close — before any talk of trade wars. It may seem like a war (or war-game) in the White House, but Europe is taking it quite seriously.
So far, American workers and investors both stand to lose more than Trump promises they might gain from the confrontation.