Trump, tariffs are not “unfair.”

April 25, 2019

https://www.fidelity.com/news/article/top-news/201904230802RTRSNEWSCOMBINED_KCN1RZ144-OUSBS_1

As reported in the above-linked article, President Trump complains that EU (European Union) tariffs on Harley Davidson motorcycles are “unfair.”  I disagree.  Tariffs are neither “fair” nor “unfair.”  They’re simply a tool used by nations to manage foreign access to their economy.  Every nation should be free to use them as they see necessary for their own best interest.  In this case, the EU has decided that it doesn’t want Harley Davidson infringing on their domestic motorcycle industry.  That’s fine.  That’s their right.

We should do the same.  Is it acceptable for EU motorcycle imports to infringe on our motorcycle industry?  If we see value in having a vibrant motorcycle manufacturing industry, then the answer is no, and the U.S. should impose its own tariffs on EU motorcycle imports.  Both sides win.  The EU protects its motorcycle industry and the U.S. does likewise.  Otherwise, if we don’t really care if we have any motorcycle industry in the U.S., then there’s no need for tariffs.

It’s as simple as that.  It’s pointless to try to threaten the EU into dropping their tariffs.  They’ve already decided that they need them, in spite of the potential ramifications that they surely considered when they imposed them.  So stop putting our trade policy in the hands of our competitors and seize control of the situation by taking actions that are within our control – not theirs.

Beyond the motorcycle industry, Trump needs to consider a whole range of imports from the EU that impact our economy.  For example, is it in the best interest of our domestic auto industry and our labor force to cede a large percentage of auto sales to EU imports?  Of course not.  But that’s exactly what we’re doing.  We have an enormous trade deficit in automobiles with the EU.  It’s long past time to impose tariffs that will restore balance to trade in automobiles.  We should buy no more from them than they buy from us.  Imposing large enough tariffs on EU auto imports is the only way to make that happen.

Come on, Mr. President, it’s time to stop playing the victim, as your predecessors have done for decades, and take meaningful action to restore a balance of trade with the EU.

 

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Harley-Davidson’s Response to EU Tariffs

June 27, 2018

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.