Europe has it in for Harley-Davidson.
The iconic American company is accustomed to seeing tariff code 871150 – i.e., a bike with an engine over 800 cc – on “hit lists” drawn up by the European Union (EU). But not like this. Last week, Brussels informed Harley-Davidson that the bikes it makes in Thailand will now be treated as if they were built in the U.S. This means they will pay the full price of EU retaliation over President TrumpDonald TrumpEmmer: Vulnerable Democrats who vote to raise taxes will lose in 2022 Joe Cunningham to enter race for South Carolina governor US has started preparing to withdraw from Afghanistan, top general says MORE’s steel and aluminum tariffs. On June 1, this tariff will rise from 25 percent to 50 percent, effectively blocking Harley-Davidson from its second-largest market.
Many U.S. exporters have been hurt as collateral damage in this trade war, but the EU is going out of its way to beat up Harley-Davidson.
First, some background. In 2017, Harley-Davidson announced that it would build a plant in Thailand, its third offshore production facility after Brazil and India. The decision made sense from a trade perspective. Thailand’s tariff on 871150 is a stunning 60 percent. Worse still, it’s not even bound under Thailand’s commitments at the World Trade Organization (WTO), meaning there is no legal limit on how high this tariff can go. To skirt this risk, Harley-Davidson engaged in “tariff-skipping foreign direct investment,” making some bikes in Thailand to avoid wild fluctuations in import duties. The company used this same strategy in India, which has a whopping 100 percent tariff on 871150, and no bound rate.
Like Brazil, Thailand is an export platform, linked through trade deals with Australia, India, Japan, New Zealand, Peru and the Association of Southeast Asian Nations (ASEAN). Even more is in the works. Thailand wants in on the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP), which includes China. For Harley-Davidson, all of these trade deals provide better market access than what the company gets when it sells from the United States.
Then, in 2018, under the guise of “national security,” President Trump slapped tariffs on steel and aluminum from Europe and eight countries outside Europe. Like several others, the EU retaliated with its own tariffs. As usual, 871150 was on Brussel’s hit list. This meant Harley-Davidson bikes faced a 25 percent retaliatory tariff on top of Europe’s 6 percent most-favored nation (MFN) duty.
At first, Harley-Davidson vowed that it would not pass this extra $2,200 per bike on to consumers, but this wasn’t sustainable for long. Plan B was to “shift production of motorcycles for EU destinations from the US to its international facilities to avoid the tariff burden.” This, in short, meant exporting from Thailand. That’s where things get really interesting.
Is a bike manufactured in Thailand…
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