Donald Trump has repeatedly said, “It’s easy to win a trade war.”
But what he doesn’t realize is that no one ever wins a trade war, and consumers on both sides always lose. In the world of international trade, tariffs are usually met with more tariffs.
And now, Harley-Davidson – a motorcycle brand that has often aligned itself with the very image of “Americaness” – is a perfect example.
In March 2018, the Trump administration announced the European Union, Canada, and Mexico, will face 25% tariffs on steel and 10% on aluminum imported by the United States. To counter the tariffs, the EU announced it will raise its tariffs on U.S. motorcycles from 6% to 31%.
The new European tariffs will make each Harley-Davidson motorcycle cost about $2,200 more to export. While the tariffs are imposed by the government, in the end, they’re paid by European consumers. U.S. consumers will do the same when buying products made with imported steel.
Although Harley-Davidson had plans to move some operations to Thailand, it has decided to move all European-bound production overseas due to the EU’s tariffs.
Demand for motorcycles has increased overseas and dwindled stateside.
Last quarter, Harley-Davidson saw a 6.8% growth in sales in Europe, the Middle East, and Africa while they fell 12% in the U.S.
Trump reacted to Harley-Davidson’s decision in a series of angry tweets.
Surprised that Harley-Davidson, of all companies, would be the first to wave the White Flag. I fought hard for them and ultimately they will not pay tariffs selling into the E.U., which has hurt us badly on trade, down $151 Billion. Taxes just a Harley excuse – be patient! #MAGA
— Donald J. Trump (@realDonaldTrump) June 25, 2018
A Harley-Davidson should never be built in another country-never! Their employees and customers are already very angry at them. If they move, watch, it will be the beginning of the end – they surrendered, they quit! The Aura will be gone and they will be taxed like never before!
— Donald J. Trump (@realDonaldTrump) June 26, 2018
Not so shockingly, Trump exaggerated the trade deficit by $50 billion.
But is a $101 billion trade deficit with the EU really a bad thing?
What exactly is a trade deficit?
A trade deficit is a difference between how much in goods and services a country imports from foreign countries versus how much it exports.
When the U.S. buys products from overseas, whether it’s oil or automobiles, foreign countries accumulate U.S. dollars that are then usually exchanged for U.S. assets such as stock and treasury bills.
“I don’t think it’s a problem for the U.S. to have a large trade deficit,” Veronique de Rugy, senior research fellow at the Mercatus Center at George Mason University, told NPR. “Every dollar that we send in exchange for goods will come back to us from foreigners in the form of investment. In a sense, if you think about it, it’s a win-win for the U.S.,” de Rugy said.
Who is affected by a trade war?
On the home front, there are no bigger winners from fair trade than poor and working-class Americans. “No consumers benefit proportionally more from trade than the poor, and nobody suffers more from existing trade barriers,” Daniel Griswold, senior research fellow and co-director of the Program on the American Economy and Globalization at the Mercatus Center, said. “The imported fresh fruit and vegetables, T-shirts and discounted sneakers sold at big-box retailers loom especially large in the budgets of poor and middle-class families.”
On a global level, trade is one reason for the massive decrease in interstate war since 1950. Although peace through capitalism isn’t the sexiest idea in the world, it’s caused a huge reduction in violence over six decades. According to Loren Mooney from Stanford Business School’s Insights, “Nations form a web of trading alliances, which creates financial incentive not only to keep peace with trading partners, but also to protect them from being attacked so as not to disrupt trade.”
