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Harley-Davidson warns European tariffs will cause a 'tremendous cost increase' (HOG)

26 June 2018
Harley-Davidson warns European tariffs will cause a 'tremendous cost increase' (HOG)

The company in its US Securities and Exchange Commission (SEC) filing on Monday said that new retaliatory tariffs by the European Union (an increase from six percent to 31 per cent) will result in an incremental cost of approximately United States dollars 2,200 on an average motorcycle exported from the US to the EU.

Harley-Davidson said the tariffs will add $2,200 (€1,880) on average to the price of its motorcycles in Europe, but it will seek to absorb the cost.

To deal with the increased costs, Harley announced it will shift production of motorcycles for European Union destinations from its US facilities to worldwide operations.

Europe is Harley's second-largest market after the USA, and the company isn't willing to cede market share by raising prices.

Harley-Davidson opened plants in India and Brazil in recent years and is opening another in Thailand this year. The Dow Jones Industrial Average declined 1.3% on Monday and the Nasdaq Composite index dropped 2.1% following reports that the Trump administration may bar Chinese companies from investing in USA companies with "industrially significant technology". The EU says about $3.4 billion worth of USA products are affected.

Adding to the difficulty facing the company were steel and aluminum tariffs on the EU, Canada and Mexico finalized by the Trump administration at the start of June.

The motorbike maker also forecast that the EU's retaliatory tariffs against United States goods would cost the company $90 million to $100 million a year. Analysts project the company will earn about US$587m this year on US$5b of revenue.

President Donald Trump's trade policy is backfiring on Harley-Davidson.

European Commission Vice President Jyrki Katainen said unilateral action by Mr. Trump in disputes over steel, China's technology policy and other issues highlighted the need to modernize the World Trade Organization to reflect developments in the world economy.

He wrote: 'Surprised that Harley-Davidson, of all companies, would be the first to wave the White Flag. With the European Union tariffs applied, the average cost of a bike faces an increase of around $2,200, it's calculated.

Harley's decline came amid broader market weakness that saw the Dow Jones Industrial Average fall almost 400 points or more than 1.5 percent.

The EU's tariffs retaliating against Trump's steel and aluminum levies will cost Harley about $2,200 per bike shipped to Europe, according to a Monday filing.

Harley announced Monday that because of the European Union's new tariffs on USA motorcycles - which came in retaliation for Trump's steel and aluminium tariffs - the company was shifting some production to non-US plants.

Shares of Harley-Davidson ended the session sharply lower at $41.57, down six percent. Its products imported to Europe originally faced a 6 percent tax, but that number has since risen to 31 percent.

After early steep declines, markets pared losses after White House trade adviser Peter Navarro softened the country's stance on investment restrictions.

Harley Davidson said that the company's prices will not rise due to "an immediate and lasting detrimental impact to its business in the region".