06 July 2018

Harley-Davidson is a quintessentially American brand. The company is headquartered in Milwaukee, Wisconsin, and its name is practically a synonym for the motorcycles it has been manufacturing for decades and that have a strong historical role in U.S. culture. Bold, loud and in-your-face, Harley-Davidson motorcycles might seem like the one product destined to succeed in light of the Trump administration’s turn to protectionism, both because of their American origins and culture and the fact that they have traditionally been manufactured in the United States.

This is why the decision by Harley-Davidson to shift production for its motorcycles for sale in the European Union away from the United States came as a shock to many. President Trump tweeted on June 26 that “A Harley-Davidson should never be built in another country — never!”, suggesting that the company had “given up,” that their employees and customers were “already very angry with them,” and less than subtly hinting that, as a result of its decision, Harley might be taxed “like never before!”

Yet President Trump might have no one to blame but himself. Harley-Davidson executives were quick to point out that the 31 percent tariff the EU enacted on its motorcycles shipped from the U.S., which prompted the decision to look beyond the U.S. to produce, was itself a reaction to Trump’s imposition of new tariffs on European steel and aluminum.

What does the dust-up between Trump and Harley have to do with entity management? More than you might think. Because what’s happening to Harley is a case study of what both U.S. and international firms with operations in the U.S. might experience with the nationalist turn in economic policy emanating from Washington — and the waves it is already making around the world. This post aims to bring out the significance of the Harley-Davidson story to international entity management.

Harley-Davidson: Made in America?

While Harley-Davidson motorcycles are as American as apple pie, the firm has been struggling for some time on the home front. Insofar as they are sold to a U.S. customer base, this is an aging one. It struggles to escape the name “Geezer Gliders.”

Harley has long been interested in making up its losses here elsewhere in the world, and it’s hardly surprising that what happens in Europe, both its largest international market and where the strongest growth in sales has come from over the past couple of years, should be a matter of concern to the firm. At a stroke, the European Union more than quintupled tariffs on hogs, from 6 percent to 31 percent, which the company said would raise the price on each motorcycle by $2,200, a cost which Harley — at least for now — is unwilling to pass on to its European customers.

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Although keenly American in the image it has cultivated, Harley-Davidson has also been pragmatic when faced with tariffs on U.S. imports, opting to manufacture in countries like Brazil and India, albeit still from American-made parts. So, the company’s decision to shift production for the European market from the U.S. to its facilities in Thailand doesn’t come out of the blue — especially since they were already hurting from the tariffs Trump imposed on their steel and aluminum inputs.

Globalization in reverse

Though Harley-Davidson executives were previously supportive of the President’s more muscular stance to protect U.S. manufacturing, they were probably eating their words as the real impact of his policy — and the ensuing chain reaction it set off around the world — became clear for their business.

What Harley is experiencing may be just the tip of the iceberg. If a German car manufacturer faces tariffs in America, it may not make sense for them to keep exporting some models from Germany to the United States and others from here to China. Trump’s policy, including both the new protectionism and measures in the tax bill passed at the end of 2017 intended to crack down on profit-shifting, raises tough questions for companies in regard to their U.S.-based supply chains.

This trend is fairly new, so its implications are just beginning to be felt in corporate boardrooms across the globe. All across the world, as Greg Ip wrote in The Wall Street Journal, “the gears of globalization are shifting into reverse.” Brexit will take its toll on the British-based operations of EU-based firms and vice-versa. All firms with international supply chains will have to face the rising trade barriers by shifting from operations located based on optimal inputs to re-localizing production, in some cases, and, like Harley-Davidson, shifting manufacturing in a way that allows their products through the walls.

Conclusion

Whether we reach a full-on trade war or not, and whatever the impact on Harley-Davidson and similar firms, it’s clear that the nationalist turn in U.S. economic policy is representative of a deeply unstable and volatile political environment, which can have a sudden impact on the economic front.

Whether you’re located in the U.S., the EU, the U.K., all of these simultaneously, or somewhere else entirely, now is the time that multinational firms need to be taking a hard and honest look at how to best secure their operations to guard against political instability and lay the best groundwork for future growth.

Technological innovation based on sound and accurate data, combined with sophisticated methods to present information, can make a crucial difference as your leadership re-evaluates its structure to take advantage of new opportunities and avoid pitfalls.

This package is precisely what is offered through Blueprint OneWorld’s entity management platform. Please email or call us today to discuss our solutions.