On Monday of last week, Harley-Davidson announced that it will be moving production of motorcycles destined for the European Union to somewhere outside the United States. The reason isn’t hard to understand:
In response to U.S. duties on European steel and aluminum, the EU enacted tariffs Friday on more than $3 billion worth of U.S. goods including bourbon, yachts and motorcycles.
U.S. tariffs on steel and aluminum imports have increased the cost of Harley-Davidson’s raw materials at the same time the European tariffs on motorcycles made it less profitable to sell U.S.-made motorcycles in Europe, so the company is moving their manufacturing operation outside the U.S. to avoid both sets of border-crossing taxes. It’s a logical business decision, and the possibility that some U.S. manufacturers would do things like this in response to tariffs was entirely predictable to anyone with even a modicum of economic education or business experience.
Naturally, Harley-Davidson’s decision made Trump angry, because he’s a babyman who cries when he can’t get his way:
A Harley-Davidson should never be built in another country-never! Their employees and customers are already very angry at them. If they move, watch, it will be the beginning of the end – they surrendered, they quit! The Aura will be gone and they will be taxed like never before!
— Donald J. Trump (@realDonaldTrump) June 26, 2018
God, what a bully Trump is. He’s the abusive boss who makes life hell for employees and then calls them “ungrateful losers” when they quit. He’s the father who beats his son and then calls him weak for crying. Trump is driving companies out of business and then blaming them for quitting.
Early this year Harley-Davidson said they would move much of their plant operations in Kansas City to Thailand. That was long before Tariffs were announced. Hence, they were just using Tariffs/Trade War as an excuse. Shows how unbalanced & unfair trade is, but we will fix it…..
— Donald J. Trump (@realDonaldTrump) June 26, 2018
That’s not true. Harley-Davidson was responding directly to new tariffs. They announced in May of 2017 that they were moving some production to Thailand to avoid that country’s just-announced 60% tax on imported motorcycles, In addition, by manufacturing in that region, they would also be able to avoid some taxes when selling into nearby countries. Of course, they wouldn’t need to do that if they were protected by some sort of free trade pact that limited tariffs against U.S. manufacturers, such as the Trans-Pacific Partnership agreement that Trump had pulled the U.S. out of just four months earlier.
Thanks to Trump foolishly tearing apart our hard-won international free trade policies, Harley-Davidson had a strong incentive to reduce production in the United States and open factories in not just one but two separate economic regions. This is not exactly shocking: When you create isolated islands of trade, the market will create isolated islands of production. That’s wasteful, and it will cost American jobs and ultimately reduce the income of Americans.
For example, Jack’s Ornamental Iron, a small ornamental metal working company, has been forced to cancel a planned expansion because of Trump’s taxes:
The two were caught off-guard when President Donald Trump announced tariffs on foreign steel. Jack’s watched the price of steel shoot up nearly 25 percent in just two weeks.
“We buy roughly a million dollars worth of steel a year,” Schow said, “so that’s going to be $150,000 to $200,000 in additional cost to our business.”
The tariffs have put a halt to the growth of the company — plans to buy a nearby building for possible expansion are no longer a reality, Schow said. Also, plans for employee raises and expanding their workforce of 25 have been put on hold for now.
This illustrates one of the worst aspects of Trump’s trade war: It’s unnatural and therefore unpredictable. Jack’s Ornamental Iron was following all the rules for success in in the market — hard work, high-quality production, good customer relations — and yet their plans for expansion were scuttled by changes in tariffs. Every business now faces additional uncertainty in its planning and investments because of Trump’s stupid trade war.
It gets worse. As Reason‘s Eric Boehm argues, Trump’s trade policy will put a lot of power over businesses into the hands of government bureaucrats:
At three manufacturing plants in Arkansas, some 1,500 workers are waiting to hear whether the Commerce Department will let them keep their jobs.
Those workers make a product that you’ve probably never thought much about: tire cords. They are the lattice-like structures, often made of steel fibers, that line the inside of rubber tires to help them maintain their shape. The owners of those three Arkansas-based tire cord manufacturing plants say they will have to close their doors and lay off their workers, Arkansas Today reports, because the type of steel wire needed to make tire cords is not available from domestic manufacturers and foreign suppliers are now subject to a 25 percent import tax. They have applied for a special exemption from President Donald Trump’s steel tariffs, and the Commerce Department is considering the request.
Because of Trump’s trade policies, it’s no longer enough to run an efficient business and produce a good product. You have to kowtow to bureaucrats.
Perhaps nothing else about the ongoing debate over tariffs so clearly demonstrates the quiet horror of the Trump administration’s attempt at central planning. Workers and factory owners who produce a necessary but unremarkable product, filling a hole in a supply chain that few Americans ever notice, now fear that they will be forced out of business if their application for relief does not find favor with federal bureaucrats.
They are hardly alone. More than 1,200 businesses have filed over 20,000 requests for exemptions from the Trump administration’s steel tariffs.
I started writing this last week, and since then the trade war has created a few more casualties:
On Friday, the Trump administration levied tariffs on some $50 billion of Chinese goods, including everything from x-ray tubes and aircraft tires to ultrasound machines and agricultural equipment. China retaliated with its own tariffs on imported Americans cars, meats, and produce.
“Every time there is a trade friction, the first thing that gets hit with retaliatory tariffs are the fresh products,” says Steve Reinholt, export sales director for the Washington-based agricultural export company Oneonta. “We pack and ship things within 48 hours. If you have a bit of a slowdown, it can effect things quickly.”
Hardest hit, says Reinholt, are the cherry growers his company buys from, who over the past decade had been doing steadily increasing business with China.
“We’re very much expecting to have less volume to China this year,” says Thurlby. “Historically we would ship two million boxes in July alone. There’s just no way we see that happening this year, not with the amount of tariffs we’re talking about.”
Exporting to China had always been a challenge for the 2,500 or so Pacific Northwest growers that Thurlby’s organization represents. In the past, these growers have had to contend with a flat 10 percent import tax as well as a 13 percent value added tax.
Trump’s trade policies have only made things worse.
In response to the U.S.’s protectionist drift, China has upped tariffs on U.S. produce twice in the last three months, once in April and again last week, getting us to the 50 percent tariffs growers now have to pay.
This sort of micro-management of the economy isn’t just some unfortunate side effect. Trump is bragging about it:
Now that Harley-Davidson is moving part of its operation out of the U.S., my Administration is working with other Motor Cycle companies who want to move into the U.S. Harley customers are not happy with their move – sales are down 7% in 2017. The U.S. is where the Action is!
— Donald J. Trump (@realDonaldTrump) July 3, 2018
I suspect that Trump gets this attitude from his years as a New York real estate developer. For a lot of people in local government, the job is not about the civics textbook version of government — passing good laws, running departments efficiently, serving constituents. Rather, it’s about making deals: Factory deals, strip mall deals, housing deals, stadium deals, land deals, development deals.
If you’re a businessman who wants to buy some land and develop it into a shopping mall with a residential complex, you will have to involve city politicians and planning officials every step of the way. You definitely need them to get zoning variances and permits, maybe some rent-control exceptions, permission for curb cuts, connections to city water and sewer, and so on. In addition, if you have enough influence (as Trump certainly did), you can probably get them to throw in some tax breaks, or maybe even use eminent domain to grab some of the real estate you need. You’ll get your lucrative development deal, and the politicians will get campaign contributions and bragging rights for bringing in new development and jobs.
That was the world Trump lived in for decades in New York, and that that seems to be his vision of what he should be doing now: Putting together deals for businesses that will help help him look good. In international trade, this means adding and removing tariffs to choose winners and losers, instead of letting the free market decide. This is pretty much the definition of crony capitalism.
The system of free international trade benefits everyone who participates, and Trump is tearing it down, hurting people on all sides. When you forcibly take value from other people to keep for yourself, that’s stealing. But when you simply destroy things that are valuable to other people, to the benefit of no one, that’s vandalism.