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DAVID KRUSE

By Staff | Jul 16, 2018

Have you noticed where Trump’s Trade war has created any jobs. . .in this country? Harley Davidson made headlines catching President Trump’s attention with an announcement that they will shift production to Europe. He will hit them hard because it is totally opposite of his narrative of making America Great!

Harley is caught in a demographic squeeze. The baby boomer demographic is getting older and is outgrowing their desire to travel on two wheels. That is why the company was shutting down a plant in KC, Missouri. Harley has struggled with attracting younger consumers to their brand. Harley sees its growth opportunity overseas, exporting 39 percent of their production last year. First, Trump put tariffs on foreign steel/aluminum which increased the cost of production of bikes in the U.S. Steel/aluminum prices declined in countries which US tariffs were levied on, reducing competitive overseas cost of production while increasing ours making US producers of steel/aluminum products less competitive. Then the EU retaliated with a 31 percent tariff on Harley Davidson bikes which, coupled with the higher production costs, blows them out of the EU market.

Harley sees that as an important market for them so in order to avoid the higher production costs and the tariffs on U.S.-made bikes they are shifting production to Europe. This makes entire business sense. If all of these tariffs are left in place, Harley and others have to move to where the demand is to avoid them. They have production in India and Brazil and soon will have another plant in Thailand. They can either make bikes that are too expensive to sell overseas and go broke here in the U.S. watching their market wither -or they can produce in local economies and make money. I think that Trump would make the same choice.

Of course, this action did not fit Trump’s narrative of creating jobs here so he was unhappy with Harley, not thinking them so patriotic anymore. I would bet that Harley shareholders do not agree. Trump threatened Harley saying that he will break them with taxes, sounding every bit like the autocratic dictator while threatening to turn his brownshirt supporters against the Harley brand.

Harley is not the only one struggling to make the tariffs work in their business model. Trump has put tariffs on raw materials like steel/aluminum but not on many of the finished products imported…at least not yet. A metal cylinder maker said that the steel/aluminum tariffs increased his cost of production so that he could not compete with imported metal cylinders made overseas with cheaper steel. Cheap steel that once would have entered the U.S. market, as a result of U.S. tariffs, is now pouring into Canada. As noted, foreign metal products are not impacted by the tariff so unless imported finished products are added to the tariff list, they make U.S. products uncompetitive. It was like the Trump administration did not see this stuff coming.

Mid-Continent, the U.S. largest nail-maker located in Missouri, reportedly was laying off employees and said that their entire 500 workers could be laid off by Labor-Day unless they get relief. The steel tariffs raised their costs so that they could not compete with nail importers and they had lost the majority of their contracts to competitors. These things happen very quickly and the Trump administration was not set up to respond in real time to the fiascos that the tariffs created for many U.S. businesses. Trump seems to have thought that U.S. businesses are just all supposed to hunker down and bleed out in silence so he can win the global trade war. Any of those companies that do not show him personal loyalty are viscously tweeted.

The administration has been understandably trying to stay away from imposing tariffs on consumer’s goods. That will become more difficult as the lists expand. The next rounds of U.S. tariffs on Chinese products will hit consumer goods directly. What that means is that U.S. consumers will feel the impact rather than it going through intermediaries that may absorb some of the cost increases first.

A lot of Americans think this trade war is necessary but contribute nothing to the pain. However, when they hit home and their pocketbooks, attitudes change. Trump has to fear eroding U.S. public support for his trade war as the bills come in and many more are forced to pay up. Many of the companies that export from China are U.S. companies so their earnings are damaged by the tariffs. Global supply chains often assemble products in China made from parts made here. It is U.S. companies that are hit by the U.S. tariffs and China is preparing to hit them again with sanctions in China. Donald has nowhere near enough money to subsidize all of these trade losses.

China cannot match the U.S. tariff for tariff, but it has a host of other weapons to hit us with. Xi Jinping told a gathering of CEOs that countries that do not participate in the trade war against them will get preferential favorable treatment. As I’ve noted, Trump has alienated the rest of the world so when they pick sides it will not be ours, unless Trump either terrifies them like Japan or hurts them so badly that they have to. Under those conditions they will feel more like slaves than friends. Optimists think that they will solve all the trade problems within a couple months and deals will be signed that will make up for the commercial destruction that will occur between now and then. I think they need slapped.

David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.

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