The President continues to
perform the previously inconceivable, but no longer surprising, act
of repeatedly berating individual companies for moving jobs outside
the United States (Not that President Obama never called out
companies by name.)
The incredibly odd thing:
his policies directly led to this conclusion.
Harley-Davidson,
whose stock is down thirty-five dollars since its peak in 2014, and
yet weathering the Trump Twitter storm relatively well, recently
suffered the threat of the indignity of being called cute.
The President is pissed
that an American company is shifting some production overseas. In
this case, it seems personal, as if he feels Harley-Davidson owes him
a favor. Undoubtedly the President's overreaction is connected to
the 2017 tax cuts on corporations. Unfortunately for the President,
the tax cuts were neither the first, or only decision he made
affecting Harley-Davidson's future.
It began with the
TPP, the Trans-Pacific Partnership, a trade agreement between
Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New
Zealand, Peru, Singapore, Vietnam, and United States, with the
purpose of excluding China. Drafted by the Obama administration,
signed but never ratified by the United States, denounced by
candidate and current President Trump. The TPP was supposed to ease
barriers to trade, to create a common market to combat China's
growing economic strength in the Pacific region. When the United
States withdrew, the remaining countries formed their own accord.
The President Trump
criticized the pact as a drain on American jobs (and there were many
legitimate issues with the TPP),
but ironically CEO Matt Levatich told Bloomberg
that the United State's withdrawal from the TPP was the impetus to
close a factory in Missouri. According to Levatich, Southeast Asia
is a growing market for motorcycles, and the TPP would have allowed
Harley Davidson to sell motorcycles from the United States, but
without the trade deal, trade barriers remain too strict. Instead,
Harley-Davidson decided to open a factory in Thailand to avoid
tarrifs. As a result, about 850 jobs were lost in Missouri, with 400
shifted to New York, and the rest to be supplemented in Thailand.
On
December 20th,
2017, the President signed the Tax Cuts and Jobs Act of 2017, and
said
"I promised the American people a big, beautiful tax cut for
Christmas. With final passage of this legislation, that is exactly
what they are getting.” But the bill wasn't about giving middle
Americans a tax cut (though most Americans received some relief).
The White House claimed
the Act was about reducing the tax burden on companies so they could
compete internationally, use their newfound wealth to hire more
workers, and pay employees better wages. This is why the President
personally feels slighted and has responded so virulently to
Harley-Davidson's decision to move production overseas. In his
opinion, the company has more cash, which should be going to
reinvestment, American CEOs, owners, workers, and consumers. Yet,
the administration should have known better as evidenced by Gary
Cohn's dispiriting November 2017 meeting with prominent CEOs. In the
meeting
John Bussey (associate editor at the Wall Street Journal) asked for a
show of hands if the presumed tax cuts would lead to investment.
Only one or two CEOs responded, to Cohn's astonished "Why aren't
the other hands up?”
Instead, the result
was exactly what many economists predicted would happened. Companies
spent most of their cash
on stock buybacks, increasing stockholder value, but generating no
impact for workers or consumers. Harley-Davidson is no different.
No more than a month after the Tax Cuts and Jobs Act of 2017 was
signed into law, the company informed its workers in Kansas City,
Missouri of the plants imminent closure. Then, just a few days
later, Harley Davidson announced
a plan to repurchase 15 million shares worth almost 700 million.
And despite a direct
appeal by the union leader of the
Missouri plant, the President has refused to respond. Instead of
dialogue he has instead turned to condemnation.
It wasn't the Kansas
City, MI plant closure which initiated the recent outburst. That was
reserved for Harley-Davidson's more recent plan to shift production
of motorcycles intended for a European market to a European location
for production (with the tariffs, the cost of producing a motorcycle
and shipping it to Europe is estimated to rise by two or three
thousand). In response the President initially accused the company
of waving “the
White Flag,” and his attacks have
only escalated. On the 26th,
he said that if Harley-Davidson moved it would be the end of the
company.
This planned
shuffling of jobs from the United States to Europe is clearly the
result of the recent steel
tariff and the escalating trade
spat between the US and EU. As the Republican Party constantly
claims, companies should pursue profits regardless of all else, and
in the case of Harley-Davidson and presumably others, the President
has incentivized this international expansion.
The President can't be
entirely blamed for Harley-Davidson's decline. Sales
have been steadily falling, with roughly a ten percent drop over the
last year. But like the NFL, and other organizations the President
claims to love, already in decline, he seems most willing to
sacrifice to achieve his end, like his own personal Gamora. His
threatening condemnations may as easily extinguish
the object of his affection as resuscitate it.
If the President isn't
careful, if he doesn't win this contest between a long beloved
American motorcycle maker and his economic plan, one has to wonder if
other companies will follow the trail blazed by Harley-Davidson.
Will tariffs and a rejection of trade deals create more stories like
Harley Davidson's or worse, weaken economic growth?
We'll have to see, because
whether we like it or not, we're along for the ride.
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