Trump’s Harley Davidson problem, explained

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Trump’s Harley Davidson problem, explained

In 2017 President Donald Trump and House Speaker Paul Ryan held up Harley-Davidson as an American company that would flourish under the Republican Party’s policies on trade and taxes.

This isn’t what’s happened so far in 2018.

In January Harley announced plans to close its Kansas City plant. Days later it said it would spend nearly $700 million on stock buybacks that would benefit shareholders. And this week the company announced that because of European tariffs, a consequence of Trump’s trade war, it will shift overseas some production — and presumably jobs. The company is already opening up a new plant in Thailand.

Harley-Davidson is an American symbol. Trump and the GOP have trotted it out as a prime example of business success and held it up as a winner from their policy proposals. Now Harley has become a lesson in how the private sector often doesn’t respond in the ways politicians want.

Instead of creating jobs in the United States, Harley’s laying off workers, and it’s expanding operations abroad. And the money it gained from tax cuts? A lot of this is going to stock buybacks.

Trump raged on Twitter on Monday after Harley’s European production announcement.

The president seems to recognize that Harley’s moving of jobs abroad — a result of his policies — is bad for the country and bad for him. A quintessential American company’s shift of operations overseas as a direct result of an American president’s actions adds up to a bad look, and he knows it.

Trump trotted Harley executives into the White House right after he was inaugurated

In February 2017 just days after his inauguration, President Trump invited Harley-Davidson executives and union representatives to the White House. Photographers snapped pictures of Trump and Vice President Mike Pence looking at motorcycles on the White House lawn.

Trump’s Harley Davidson problem, explained

In remarks in the Roosevelt Room during that February 2017 meeting, Trump called Harley-Davidson a “true American icon” and “one of the greats.” He said his policies would breed success for the company and make the United States the “best country on Earth to do business” because “we’re redoing NAFTA, redoing a lot of our trade deals, and we’re negotiating properly with countries.”

The meeting, like many Trump events, went off the rails a bit; the president also vented frustration about an immigration deal between the US and Australia and bragged about his electoral victory in Wisconsin. But the president’s message was clear: His trade policies, including those on tariffs, would be good for Harley-Davidson.

“I think you will be very happy,” Trump declared.

And Trump isn’t the only one who has singled out Harley. In 2017 House Speaker Paul Ryan (R-WI) went to a Harley plant in Menomonee Falls, in his home state, to tout the Republican tax bill, which Trump signed later that year.

“Tax reform can put American manufacturers and American companies like Harley-Davidson on a much better footing to compete in the global economy and keep jobs here in America,” Ryan told workers and company leaders.

The tax cut came through. The Republican-backed tax law, which slashed the corporate tax rate from 35 percent to 21 percent, is bringing Harley sizable savings. The company has estimated its effective tax rate — the amount it pays — will be 23.5 percent to 25 percent this year, about 10 percentage points lower than what it would have been without the new law.

Harley took its tax cut, closed a plant, and bought back stock

But the promises Trump and Ryan made to Harley-Davidson haven’t materialized — at least not for the company’s workers.

In January Harley announced that it will close a plant in Kansas City, Missouri, leaving 800 workers without jobs. It will shift operations to another plant in York, Pennsylvania, and hire some workers there, but ultimately there will be a net loss of 350 jobs.

Days after the plant-closure announcement, which Kansas City workers say took them by surprise, Harley-Davidson announced a dividend increase and a stock-buyback plan to repurchase 15 million of its shares, valued at about $696 million.

This is a pattern that has played out multiple times since the tax cuts passed and something that Democrats warned about before the bill became law. Companies profit, shareholders reap the benefits, and workers are left out.

The Kansas City plant’s closing will cost Harley as much as $200 million through 2019, according to Bloomberg’s estimates, and could result in annual savings of $65 million to $75 million after 2020. Greg Tate, a staff representative for the United Steelworkers District 11 that represents about 30 percent of the Harley-Davidson plant’s workers, told me earlier this year he thinks Harley’s tax savings might have actually freed up cash for it to move ahead with its US restructuring plan.

“They have the capital now to move Kansas City, to shut it down,” he said. “All of that money really came from the tax cut plan, so it kind of had the opposite effect of what it was supposed to do.”

While Harley’s operations are contracting in the US, they’re expanding abroad

In May 2017 after the White House visit but before Ryan’s tax tour, Harley said it planned to build a plant in Thailand. The plant would allow Harley to avoid Thailand’s tariff of as much as 60 percent on imported motorcycles and help the company obtain tax breaks when exporting to neighboring countries, according to CNBC. Harley’s CEO, Matt Levatich, said the decision was made as part of a “Plan B” when Trump dropped out of the Trans-Pacific Partnership.

Harley already has operations in Brazil and India, and it has a plant in Australia that it plans to close.

Executives at Harley have said that the Kansas City plant’s closure has nothing to do with the Thailand factory, but not everyone’s buying it. Union leaders have suggested that the Thailand plant’s opening and the Kansas City plant’s closing are tied together.

“Part of my job is being moved to York, but the other part is going to Bangkok,” Richard Pence, a machinist at the Kansas City plant, told the Milwaukee Journal Sentinel in May while in Washington for a meeting between House Minority Leader Nancy Pelosi and members of the Association of Machinists and Aerospace Workers. That union represents about 70 percent of the Harley-Davidson workers being laid off.

Then this week Harley announced that some of its US jobs would definitely be transferred overseas as a result of recent tariffs.

At the end of May, the Trump administration said it would impose tariffs on steel and aluminum imports from the European Union, Canada, and Mexico. The European Union subsequently said it would retaliate and announced plans to put tariffs on €2.8 billion ($3.2 billion) of American goods. Those tariffs went into effect on June 22.

Harley said on Monday it will shift the production of its Europe-bound motorcycles overseas as a result of the EU’s retaliatory tariffs. In a regulatory filing with the Securities and Exchange Commission, the company said the EU’s tariffs (a reaction to the Trump administration’s tariffs on steel and aluminum imports sent to the United States) will add an additional $2,200 to the price of motorcycles sold in Europe and cost it an additional $30 million to $45 million this year.

It’s not exactly clear which factories will take on the excess production for Harley. The Milwaukee Journal Sentinel pointed out that Harley’s Street-model bikes are made in India for Italy, Spain, and Portugal.

Harley workers thought Trump would help them. He’s doing the opposite.

After Harley-Davidson announced the closure of its Kansas City plant, some workers hoped that President Trump would step in and pressure the company to change course. After all, that’s what he’d done with Carrier in Indiana.

In March Robert Martinez Jr., president of the International Association of Machinists, sent a letter to President Trump asking him to intervene and save Kansas City workers’ jobs.

“For decades, hard-working Machinists Union members have devoted their lives to making high-quality, American-made products for Harley,” he wrote, later adding, “America’s working men and women deserve better than being thrown out onto the street. Our nation deserves better.”

Trump never responded.

Now, it looks as if even more Harley jobs will be shifted abroad as a result of Trump’s policies. Even Republicans aren’t defending the trade war.

“This is further proof of the harm from unilateral tariffs,” AshLee Strong, a spokesperson for Speaker Ryan, said in a statement on Monday. “The best way to help American workers, consumers, and manufacturers is to open new markets for them, not to raise barriers to our own market.”

Sen. Ben Sasse (R-NE) was more cutting. “The problem isn’t that Harley is unpatriotic — it’s that tariffs are stupid,” he said in a statement.

Trump on Monday and Tuesday tweeted about Harley multiple times. He complained that Harley-Davidson motorcycles should “never be built in another country” and lamented that the “Aura” around them will be gone.

The president essentially blamed the company for throwing in the towel too soon on the trade battle he is waging with Europe and apparently expects everyone to wait out. “Surprised that Harley-Davidson, of all companies, would be the first to wave the White Flag,” he wrote.

Trump has even threatened to tax Harley in retaliation, although it’s not clear he can.

This likely isn’t what Trump had in mind at the beginning of his presidency. Harley-Davidson was supposed to be a poster child for the benefits of Trump’s trade tactics and tax cuts. But instead it’s become an example of policy gone wrong — an early loser in an ongoing trade war.

Sourse: breakingnews.ie

Trump’s Harley Davidson problem, explained

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