Iconic US motorcycle manufacturer, Harley-Davidson, made a splash this week, blaming Trump’s incoherent tariff policy for their plan to shift some production to Europe. Their announcement highlighted the pointlessness of Trump’s tariffs, but Harley may not be telling the whole story.
Like most modern manufacturers, Harley is depends on free trade to support both their US manufacturing supply chain and their sales. Publicly attaching their plans to Trump’s tariff policy fits a favorable narrative. What they aren’t talking about is tax treatment.
Though manufacturers generally loathe tariffs, they love Republicans’ recent tax cuts, especially the new territorial tax framework. Tax reform changed our treatment of income American companies earn overseas. Under the new system companies pay far lower US taxes on money earned from overseas production. To put it another way, we just created a multi-billion dollar public giveaway for companies that move production out of the US. By manufacturing in the EU Harley not only avoids the costs generated by Trump’s stupid tariff plans, they slash their tax bill.
Harley took the money from the Republican tax cut and closed down a Kansas City factory with its 800 jobs. Then they spent almost $700m on a buyback program and raised their corporate dividend. If you look at a chart of the Dow, you can see the “Ponzi Bulge” of the corporate buyback briefly driving up values in January of this year. The market dove in February and has yet to regain its footing. Despite a booming economy, the US is now expected to borrow at least $200bn more than last year just to cover the money given away in tax cuts. In short, neither the tariffs nor the tax cuts were smart, but Harley is only complaining about one them.
Stupidity has consequences.