High felutin cultural city girl that this writer is, she never really thought about motorcycles being the most demonstrative product to illustrate the concept of national protectionism and trade wars via tariff, but a couple different posts have surfaced that lay out why the currently all but non-existent American tariff impacts, of all companies, Harley-Davidson in such a way so as to make macro-economics rather simple.
See, back in the beginning of the country, when American trade was all about cotton, sugar cane, fur, indigo and tobacco, the way the government made most of its money was by levying a tariff on imported goods. According to historical records, until the War of 1812, over 80% of the federal budget was made up of the revenue from tariffs which amounted to up to 35% of the value of the goods imported. (Gotta love Wikipedia)
Well, at some point in the 20th century, like right after World War II when the United States was helping a whole lot of other countries get back on their feet after we bailed them out, or beat them into oblivion in a couple cases, the U.S. tariff on imported goods went down below 10% of the value of imported goods, and, effectively, has never gone back up again, at least not across the board. In fact, around World War I, once the federal income tax was foisted on the people (that amendment was never actually ratified), federal government revenue from tariffs dipped below 50% of the total budget and in the last 100 years has gotten to be an increasingly smaller segment of how the U.S. government takes in cash. (There’s a chart on the Wikipedia page in five year increments.)
This exact topic – the tariff – is one of several economic sticking points that has so many foreign governments worried about a potential Donald Trump presidency. At this time, the U.S. tariff is less than 2% of imported goods. Everyone else’s tariffs are a bit higher, and for certain exports from the U.S., at protectionist levels. Trump wants to re-negotiate a number of trade deals that are holding the U.S. tariff so low, and raise the tariff for imported goods to make American products more price competitive.
That is where using Harley-Davidson as a case in point when it comes to the tariff is handy. That particular company is impacted by protectionist level tariffs, and has been for decades.
Back in 1983, Harley-Davidson was in trouble. Japanese motor-cycle makers were taking advantage of the low tariff and dumping their product in the United States in direct competition with actual hogs. In order to save the AMERICAN company, then President RONALD REAGAN – yes, the face of American conservatism – temporarily raised the tariff on large highway motorcycles from 4.4% to 49.4% to the delight of Milwaukee, and sparking this reaction from the Japanese:
But it brought angry reaction today from Japanese officials and a threat to file unfair-trade charges against the United States in Geneva.
”We consider it unfortunate that the American side decided to take this kind of drastic measure,” said Hiroshi Ota, counselor for public affairs at the Japanese Embassy here. He added that Japan was considering taking a formal protest of the action to the General Agreement on Tariffs and Trade.
The complaint would have been made to GATT, the precursor of the World Trade Organization. The U.S. was not a signatory of GATT, but has been part of the WTO since the Bill Clinton administration. At the time, according to the New York Times article quoted, 80% if the American motorcycle market was owned by Japanese sellers, and this move was really to rescue the only remaining American motorcycle manufacturer left.
Fast forward to today, when the American tariff for just about everything from overseas has been obliterated by bad trade deals (that’s why so much of it is affordable for us) including Japanese motorcycles which is currently less than 3%, and Harley-Davidson is making decent money on a world wide scale, and we find out that the hog makers have a plant in northern India. Why? Because India has a 100% tariff on motorcycle imports. As it happens, that is supposedly an assembly plant to get around the tariff since the selling point of a Harley is that it is American-made, but there it is. That specific case is protectionism via tariff by another country that threatens American jobs, not just because India has the 100% tariff, but because the world wide market for hogs is served from that plant. The only hogs completely made in America are sold in America. Most other countries have HUGE tariffs on motorcycles imported from the United States, and selling truly American made products would place Harley outside of the affordability realm overseas.
And our government rolled over and played dead at the free trade negotiating tables rather than raise the tariffs on various goods to common sense levels to keep the people employed in private industry. This could be why the Trans Pacific Partnership manuscript is over 2,000 pages.
Imagine that. In 240 years, the tariff for American goods went from providing 90% of federal government revenue to less than 2%. What Donald Trump wants to do is renegotiate the trade deals, since the USA is the dumping grounds for the rest of the world’s cheap crap, and make American products competitive price wise using the tariff. That is just one reason the rest of the world is afraid. The other is that the American people are waking up to the fact that Trump is right on this topic, and we want our industry back.