US motorcycle manufacturer Harley-Davidson to move some production out of US to avoid EU tariffs

American motorcycle manufacturer Harley-Davidson, recently celebrated by US President Donald Trump as an example of what was going to go right for manufacturing in the US, has announced it is shifting more of its production out of the US as a result of retaliatory measures against American products by other countries.   

Harley-Davidson said on Monday it would move production of motorcycles shipped to the EU from the US to its international facilities and forecast the trading bloc's retaliatory tariffs, a reaction to the Trump administration’s tariffs on steel and aluminum imports to the United States, would add an additional $2,200 to the cost of motorcycles sold in Europe and would cost the company $90 million to $100 million a year.

"Harley-Davidson believes the tremendous cost increase, if passed onto its dealers and retail customers, would have an immediate and lasting detrimental impact to its business in the region," the company said in a regulatory filing with the Securities and Exchange Commission (SEC).

“To address the substantial cost of this tariff burden long-term, Harley-Davidson will be implementing a plan to shift production of motorcycles for EU destinations from the US to its international facilities to avoid the tariff burden,” Harley-Davidson said, calling on the US government to find “sustainable solutions to trade issues and rescind all tariffs that restrict free and fair trade.”

Later Monday, Trump said he was "surprised" by Harley's decision.

Struggling to overcome a slump in US demand, Harley has been aiming to boost sales of its iconic motorcycles overseas to 50 percent of total annual volume from about 43 percent currently.

In January, the company announced the closure of a plant in Kansas City, Missouri, and subsequently laid off some 800 workers as part of a consolidation plan after its motorcycle shipments fell to their lowest level in six years.

In 2017, Harley sold nearly 40,000 new motorcycles in Europe which accounted for more than 16 percent of the company's sales. The revenues from EU countries were second only to the United States.

US-EU trade war hits Harley hard

The retaliatory tariffs are being implemented by the EU on $3.2 billion worth of American good, ranging from motorcycles and motorboats to orange juice, peanut butter and denim.

For motorcycles the EU is raising its 6 percent tariff to 31 percent, making each bike around $2,200 more expensive to export.

The EU tariffs reduce the company's 2018 profits by 5 to 8 percent, according to a CNBC analysis of Thomson Reuters data and Harley's cost projections. The full-year impact of $90 million to $100 million is about 15 percent of the company's annual profits.

Trump vowed to make the motorcycle maker great again when he took office last year. But in late April, Harley said Trump's metal tariffs would also inflate its costs by an additional $15 million to $20 million this year on top of already rising raw material prices that it expected at the start of the year.

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