In response to European Union (EU) tariffs on Harley-Davidson motorcycles, Harley-Davidson announced on Monday that it would shift production of its motorcycles for the EU market overseas in order to avoid $90-100 million in tariffs. (It wasn’t clear if it planned to move production to the EU or somewhere else.) The tariffs imposed by the EU were in response to the Trump administration’s tariffs on imported steel and aluminum. In addition to the tariffs on Harley-Davidson motorcycles, the EU also imposed tariffs on Kentucky bourbon and Levi’s jeans. (Apparently, the EU isn’t aware that Levis are no longer made in the U.S.)
In response to Harley’s announced move, Trump attacked Harley-Davidson on Tuesday: https://www.reuters.com/article/us-harley-davidson-tariffs/trump-threatens-harley-davidson-over-european-production-move-idUSKBN1JM1AF.
So what does this all mean? Is this proof that tariffs don’t work, as free-trade advocates claim? Hardly. It is proof, however, that in order to be effective, tariffs must be applied across-the-board to all of the manufactured products from the country or region in question. Rather that attack Harley-Davidson, the president’s next move should be a reciprocal (or larger) tariff on all motorcycle imports from the EU. No more BMW’s. No more Triumphs or Nortons or Ducatis.
Harley-Davidson has a right to move production overseas, just like the above-mentioned EU motorcycle manufacturers would then have a right to move production to the U.S. to avoid its tariffs. Better yet, Harley-Davidson would suddenly find itself in a better position to begin manufacturing motorcycles in the U.S. to compete in those segments of the market. Harley-Davidson would come out the winner, and EU motorcycle manufacturers would be the losers. Net employment in motorcycle manufacturing would actually rise in the U.S.
No doubt, the EU would respond with more tariffs on U.S. products, though it’d be hard-pressed to find ones that it imports from the U.S. in greater measure than it exports. But why wait for that? Let’s hit them where it really hurts and put a 25% tariff on EU auto exports. No more VW’s. No more Mercedes Benzes. No more Audis, Jaguars, Land Rovers, Fiats, Alfa Romeos and Volvos.
The EU will respond with tariffs on U.S. auto imports, you might say. What imports? Imports of American cars to the EU are virtually non-existent. Oh, there are a few, but they’re dwarfed by European imports into the U.S. The net result would be soaring employment in the U.S. auto industry as American consumers shunned the now-more expensive European imports.
Come on, President Trump. You’re off to a good start in fixing our trade mess. It’s time to go “all in” and apply tariffs across-the-board on all European imports. When you’re done with that, you can have an even bigger impact in Asia.