A Linear Route and Result

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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