Iconic motorcycle brand Harley-Davidson said that as a result of the U.S. and E.U. tariffs, manufacturing for the European market would be transferred from the U.S. to a new plant in Thailand.
The firm – headquartered in House Speaker Paul Ryan’s home state of Wisconsin - also has plants in Australia, Brazil and India. It planned the new plant after Mr Trump withdrew from the Trans-Pacific Partnership (TPP) trade deal, which would have lowered tariffs in Asia.
Harley-Davidson faces a similar dilemma as many Foreign-Trade Zone manufacturers. The requirement that affected goods be brought into FTZs in privileged foreign (PF) status means skyrocketing production costs for goods sold here in the U.S. And while FTZ use means the additional U.S. duties are eliminated for export sales, foreign countries are hiking their own tariffs to penalize production in the U.S. That means Harley-Davidson, and other FTZ and non-FTZ manufacturers have only one option to avoid the dramatic tariffs – shift production offshore.
Harley-Davidson said the tariffs would add, on average, $2,200 (£1,660) to each bike exported to Europe from the US as the import tax increases from 6% to 31%. The company, which sold nearly 40,000 motorcycles in Europe last year, said it planned to absorb those costs rather than pass them on to customers and risk damaging sales.
Some US unions however are not supportive of the motorbike maker's decision to move production abroad.
The International Association of Machinists and Aerospace Workers, which represents some Harley employees and has supported some of the president's tariff announcements, said the decision was "in keeping with Harley's past decisions to open plants outside of North America."
"Will Harley use any excuse to ship jobs overseas?" said Robert Martinez Jr, the union's international president. "Does Harley even understand what 'Made in America' means?"
United Steelworkers, which also represents Harley workers and has backed tariffs, said it does not know yet how the company's decision will affect employment. "Domestic sales are what drive production and employment at Harley's US facilities," said Michael Bolton, a district director for United Steelworkers, who added that the company should focus on US production if it wants "to continue to market itself as an iconic American brand".
The European Union will launch a raft of retaliatory tariffs against US exports today, shortly after President Trump removed the exemption that had been granted to EU steel and aluminum imports earlier in the month.
"The unilateral and unjustified decision of the US to impose steel and aluminum tariffs on the EU means that we are left with no other choice," EU trade commissioner Cecilia Malmstrom said.
Brussels drew up the list of products in March when President Trump initially proposed the 25% tariffs on steel imports and 10% on aluminum, which also target Canada, Mexico and other close US allies. In addition to bourbon, orange juice and motorcycles, cranberries, orange juice, sweetcorn and peanut butter are among the goods targeted.
On Tuesday, President Trump threatened to impose duties on an additional $200bn (£151bn) of Chinese goods after hitting $50bn of products with tariffs. He said the 10% duties would come into effect if China "refuses to change its practices".
However, China accused the US of "blackmail" and said it would "fight back firmly", raising fears of a full-blown trade war. President Xi Jinping is said to be telling C.E.O.s that he’s ready for a brutal fight.
President Trump has argued that global oversupply of steel and aluminum, driven by China, threatens American steel and aluminum producers, which are vital to the US.
Since then, South Korea, Argentina, Australia and Brazil have agreed to put limits on the volume of metals they can ship to the US in lieu of tariffs. Such quotas eliminate the additional tariff but force manufacturers to find alternate suppliers before the year is out.
However, Canada has announced it will impose retaliatory tariffs on C$16.6bn (£9.5bn) worth of US exports from this coming Sunday.
Mexico put tariffs on $3bn worth of American products ranging from steel to pork and bourbon two weeks ago.
The measures have also prompted complaints at the World Trade Organization, including from India and Norway.
Ms. Malmstrom called the EU response proportionate and in line with World Trade Organization rules. She said that counter-measures - which affect €2.8bn worth of US goods - would be removed if Washington removed its metal tariffs.
EU steel and aluminum exports now facing US tariffs are worth a total of €6.4bn (£5.6bn).
Many of the products the EU has in its sights are specifically chosen to have maximum political effect. Bourbon whiskey is produced in Kentucky, the state of Senate majority leader Mitch McConnell.
Orange juice is a key export for Florida, often a swing state in US elections. Meanwhile, economists have warned the US metal tariffs could lead to higher metal costs, disrupt supply chains and even get passed on to US households. Last week, the International Monetary Fund warned that the Trump administration's protectionist policies are likely to hurt the US economy and undermine the world's trade system.
IMF director Christine Lagarde said a trade war would lead to "losers on both sides" and have a "serious" impact. US Commerce Secretary Wilbur Ross has dismissed the concerns about higher costs, arguing that the effects would be minimal. At a hearing in Washington on Wednesday, he blamed a spike in the price of steel on speculative activity and said his department would conduct an investigation into "illegitimate profiteering".
In Beijing on Friday, Chinese foreign ministry spokesman Geng Shuang repeated earlier warnings that all trade talks between China and the US would be void if Washington imposed trade sanctions. "Our position is still the same," he said. "If the US takes unilateral and protectionist measures that harm Chinese interests, we will respond immediately by taking the necessary decisions to safeguard our legitimate rights and interests."
President Xi Jinping is said to be telling C.E.O.s that he’s ready for a brutal fight.
On Thursday, International Monetary Fund (IMF) director Christine Lagarde warned that the Trump administration's trade policies were likely to hurt the US economy and undermine the world's trade system.
She said a trade war would lead to "losers on both sides" and could have a "serious" impact.
While the IMF expects the trade dispute to have relatively minor economic consequences - slowing GDP by a fraction of a percentage point - Ms Lagarde said she was concerned about how the fight would affect sentiment.
"What is more critical and more difficult to factor in at the moment... is the actual impact on confidence," she said at a news conference in Washington.
The Department of Commerce released the first exclusions from its 25 percent steel tariff. In addition to the approvals, requests from 11 companies have been rejected, and nearly 20,000 applications remain to be decided.
Commerce announced last Wednesday that it had granted exclusions to seven companies that requested an exemption for 42 products sourced from Japan, Sweden, Belgium, Germany and China. The companies included the razor maker Schick Manufacturing and Nachi America, which makes cutting tools, bearings and hydraulics.
But the department denied 56 products, from companies that included Seneca Foods, a fruit and vegetable producer; Bekaert, a maker of steel wire; and Mills Products, a metal fabricator. Some businesses, such as Primrose Alloys, a metals trading company, and Wright & McGill, a maker of fishing gear, were denied several applications.
Some applications, like those of Seneca and Mills Products, were rejected because they were deemed incomplete, according to decision memos posted online. But several companies whose applications were denied faced objections from American steel makers.
Nucor, an American steel company that has supported the tariffs, argued against Bekaert’s request for an exclusion for wire rod that it uses to produce cord that goes in tires. Nucor said Bekaert had access to enough of the rod without requiring an exclusion.
The Trump administration imposed sweeping tariffs on imported steel and aluminum in late March, but promised to fine tune the process by allowing companies to apply for exemptions for products that were not readily available in the United States.
While companies say they still have uncertainties about the requirements for exemptions, many of the approvals and denials have so far appeared to come down to whether an American steel or aluminum manufacturer objects to the request. If a United States company opposes a request, the Commerce Department is more likely to reject the application, according to Wilbur Ross, the commerce secretary.
Mr. Ross said in an interview this month that he expected the majority of requests that the department had received to be denied, since many of them are not based “on the idea that the products are not really available.”
“Many of the requests are effectively requesting relief simply because the product prices are higher than they would be with the imports, and that’s not a sufficient reason to grant the exclusions,” he said.
United States Steel, which said it was restarting idled furnaces around the country in response to the tariffs, has filed objections against a slew of companies seeking exclusions, sometimes opposing dozens of requests from the same source. In most filings, U.S. Steel said it was capable of producing the metal for tubing, casing, piping and sheeting that companies asked for permission to import.
The Commerce Department must still deal with nearly 20,000 petitions in its queue. While the administration has said the exclusions are an effective way to ensure the fairness of the tariffs, companies that have applied for the exclusions criticized the exercise as both long and disorganized.
“This is the most screwed-up process,” said Mark Mullen, president of Griggs Steel, a steel distributor in the Detroit area. “This is a disservice to our industry and the biggest insult to our intelligence that I have ever seen from the government.”
Mr. Mullen has made 90 requests and has not been told the status of any of them. He is waiting to submit 2,000 more requests, “but they take so damn long,” he said.
As the chaotic exclusion process continues, Mr. Trump is expanding his trade efforts on multiple new fronts, threatening tariffs on up to $450 billion of products from China and roughly $350 billion of imported autos and auto parts.
Although the president has famously said trade wars are “easy to win,” the lingering difficulties of the steel and aluminum tariffs, which were put into place three months ago, show the inevitable complexity of trying to reshape the rules of global trade in a matter of months.
The handful of companies that have received exclusions to the tariffs are so far pleased. Bill Brebrick, the United States sales manager at Zapp Precision Wire, which was granted an exclusion for a zinc-coated flat-rolled wire that it produces in Germany, said the outcome had shown him “that the system’s working.”
Mr. Brebrick said he filed a request for the exclusion months ago, along with roughly 60 others for various products that he has not yet heard about. The Commerce Department did not inform him that his request had been granted. Instead, he found out by checking for updates online every day.
“This has been a very frustrating saga for us,” said Todd Adams, the vice president of Stainless Imports in Florida, after a reporter informed him Friday that his application had been denied, with no reason provided.
The American economy has picked up speed and is now on course to expand this year at the fastest rate in more than a decade according to the New York Times. Consumer spending has rebounded after a soft start this year. Retail sales jumped 0.8 percent in May, double what analysts had forecast.
That acceleration gives President Trump a stronger hand as he contemplates more tariffs and takes an increasingly confrontational approach with China, Canada, Mexico and other trading partners.
Economists have raised their growth estimates for the second quarter to an annualized rate of nearly 5 percent, more than double the pace of the previous period. Some economists say the figure could hit 3 percent for the full year, a level last reached in 2005.
As growth slows in Europe, China, Japan and elsewhere, the United States finds itself at the top of the global economy. The United States is also less exposed to the fallout from an escalating trade war since it does not rely on exports as much as other countries. It all gives Mr. Trump leverage with world leaders, potentially forcing them to make concessions.
But his threats could also backfire. Economists warn that the president’s clout is limited and that his attacks on the trading system could dampen the outlook not just in other countries but also domestically.
“If you have the strongest economy in years, then the trade shock appears manageable,” said Gregory Daco, head of United States economics at Oxford Economics. “However, with growth peaking, the trade shock will become more intense. With a global backdrop that is not improving anymore, we have to be careful about the back half of 2018 and 2019.”
In July, the recovery will reach the nine-year mark, making it one of the longest in modern history. But for much of that time, the engines of the economy were rarely synchronized. When consumers were spending at a healthy clip in 2015 and 2016, business investment lagged as energy companies scaled back or abandoned projects in response to a sharp drop in oil prices.
All that has changed in recent months. Now, the different parts of the economy appear to be operating as one well-oiled machine. Consumer spending rebounded after a soft start to the year, with retail sales in May rising by a robust 0.8 percent, double what analysts had forecast.
“We have a very strong economy, and if the trade negotiations are successful, it’ll be even stronger,” said Kevin Hassett, chairman of the White House Council of Economic Advisers. He added that the president was “impatient to fix broken policies,” with trade at the top of the list after last year’s tax overhaul and deregulation effort.
The trade deficit, often cited by the White House as a vulnerability, narrowed in April, further bolstering economic activity in the second quarter. Strong April orders for fabricated metal, computers and other goods used in production also helped, as did a buildup in inventory as businesses restocked shelves. Such additions to inventory barely had an impact on growth in the first three months of the year, but could contribute nearly a full percentage point in the second quarter.
Increased government spending is providing added propulsion. The two-year budget deal reached in Congress in February added $300 billion in new government spending that is starting to flow into the economy. “It’s something of a sugar high, but it feels good,” said Diane Swonk, an economist with Grant Thornton in Chicago. Taken together, these factors have compelled economists to re-evaluate the economy’s tempo. At the beginning of May, Macroeconomic Advisers, a forecasting firm based in St. Louis, estimated growth of 3 percent in the second quarter. By mid-June, it was putting the figure at 4.5 percent. The Federal Reserve Bank of Atlanta’s GDPNow model is even more upbeat at 4.7 percent.
But the good news may not last. While Ms. Swonk expects a 3 percent expansion for the full year, she added, “This likely will be the peak growth for this cycle.” As the American economy accelerates, President Trump has more leverage in waging trade wars against China and other countries where growth appears to be slowing.
Contributing to that view is the rise in interest rates as the Federal Reserve gradually withdraws the easy credit that persisted for much of the recovery. “The headwinds are mounting,” Ms. Swonk said.
And then there are fears of an expanding trade war. Tariffs could hurt the American economy by stoking inflation without increasing wages.
Trade wars won’t sharply curtail economic activity, unless they cause businesses to lose confidence, said Spencer Dale, chief economist for BP, the energy giant. The bigger problem, he said, is that trade wars could “eat away at trend growth” by reducing G.D.P. by a fraction of a percent a year. That might not seem meaningful in any given year, but compounded over a decade or two, it could leave the economy noticeably short of what it might otherwise have achieved.
The Fed chairman, Jerome H. Powell, has also noted those risks. “Changes in trade policy could cause us to have to question the outlook,” he said on Wednesday at a European Central Bank conference in Portugal.
Still, the United States remains more insulated from a trade shock than other countries. Exports account for just 12 percent of American gross domestic product. That’s the lowest share among the 35 members of the Organization for Economic Cooperation and Development, a group of industrialized countries. By contrast, the figure is 31 percent in Canada, 37 percent in Mexico and 44 percent in the European Union.
In the United States, consumer spending accounts for nearly 70 percent of G.D.P. And recent surveys and other data show that people are bullish about the economy’s trajectory, according to Ian Shepherdson of Pantheon Macroeconomics. Owners of small businesses are also confident — about their own prospects and about the overall economy.
When Mr. Shepherdson put out a note to clients on May 14 highlighting the possibility of 5 percent growth in the quarter, he was quick to add that his forecast looked outlandish. “I was being tongue in cheek, looking at what would happen if everything goes right,” he said. “But it’s become more like the base case.”
Despite the improving consensus, Mr. Shepherdson said the quarter’s pace “is not sustainable,” but he does expect consumer spending to be solid in the second half of the year.
Sean McCartney, an executive vice president at Radial, a fulfillment and logistics business, agrees, and he’s putting his money to work. Radial will hire about 24,000 temporary workers later this year for the company’s fulfillment centers, call centers and warehouses to prepare for back-to-school demand and the holiday shopping season. That’s up by roughly 1,000 from last year.
“This year is shaping up to be strong, the strongest since the recovery began,” Mr. McCartney said. E-commerce companies represent most of Radial’s business, and the company has expanded its footprint to ensure faster deliveries.
Many of its operations are in the middle of the country, in states like Ohio and Kentucky, with plentiful transportation links enabling them to reach both coasts. To attract new workers and keep existing ones, Radial has been offering spot raises of $1 an hour for temporary positions in some cities, on top of the typical $12-an-hour average for Radial’s network of sites.
“We have hundreds of open positions,” Mr. McCartney said. “We definitely could hire more than we have.”
After months of speculation, the Trump Administrations’ first tariffs aimed exclusively at Chinese goods take effect on July 6th. This list includes 818 of the 1,333 tariff lines originally announced, and is valued at $34 billion worth of imports from China. Products falling under these tariff lines with an origin of ‘CN’ will see an additional duty of 25 percent. There had been much speculation that the President might be able to extract enough sanctions to avoid actually imposing the additional sanctions, but negotiations faltered. In response, stock markets fell, and leaders from around the world first condemned the action, then announced their own tariff hikes on U.S. goods. The only thing that did seem to respond to the tariff announcements: the U.S. economy. Perhaps a timely sign of Independence?