Trump tariffs start to disrupt US auto industry

ICONIC American motorcycle manufacturer Harley-Davidson has announced it will shift production of European-spec bikes from its US plant to Asia and South America, after the European Union implemented a 31 per cent tariff on US-made motorcycles.

The tariff, which went into effect on June 22, has raised import duties by 25 per cent from six per cent, and was introduced in retaliation to president Donald Trump’s import taxes on foreign steel and aluminium.

Harley-Davidson said in a filing to the US securities and exchange commission that increasing international production “is not the company’s preference, but represents the only sustainable option to make its motorcycles accessible to customers in the EU and maintain a viable business in Europe”.

In 2017 the company sold nearly 40,000 vehicles in the EU, making it the second largest market for revenue behind the US.

Harley said it had no plans to raise the cost of its products to cover the tariffs, and the immediate impact would result in a $US30 to $45 million ($A40.5-$60.7m) hit to the company.

It has estimated that the aggregate annual impact of the tariffs would be $US90 to $100m ($A121.38-134.87m), and would increase the average cost of motorcycles imported from the US to the EU by approximately $US2200 ($A2967). On Monday, shares of the company dipped by 2.7 per cent.

Harley-Davidson has estimated ramping up its international production will take nine to 18 months.

Mr Trump said in a tweet that he was surprised that Harley-Davidson would “be the first to wave the white flag” in regards to its shift of manufacturing off-shore.

Seemingly to hit back from the EU regulations, on Friday Mr Trump said in a tweet that he in considering placing a 20 per cent tariff on all cars imported from the EU.

“Based on the Tariffs and Trade Barriers long placed on the U.S. & its great companies and workers by the European Union, if these Tariffs and Barriers are not soon broken down and removed, we will be placing a 20% Tariff on all of their cars coming into the U.S. Build them here!” he wrote.

One month ago, the Trump administration launched an investigation into whether auto imports pose a national security threat, with the US commerce department set to wrap up its investigation by late July or August.

Mr Trump identified German auto imports as targets for the tariffs, which according to American publication Automotive News accounted for 657,000 vehicles in 2017, down 7.0 per cent on the previous year. European-built models currently make up around 7.2 per cent of vehicles sold in the US.

Last year the US accounted for around 15 per cent of Mercedes-Benz and BMW sales globally, as well as 12 per cent of sales for Audi and 5 per cent for Volkswagen.

Furthermore, German companies built 804,000 new vehicles in US factories in 2017, the largest being BMW which builds SUVs out of its plant in Spartanburg, South Carolina, which shipped US$10b (A$12.1b) of vehicles last year.

Mercedes-Benz builds its best-selling model, the C-Class sedan, as well as the GLE large SUV at a plant in Tuscaloosa, Alabama, and will make a significant investment in the plant to facilitate EV production.

VW produces the Passat sedan and Atlas SUV for the American market in Chattanooga, Tennessee, while Volvo recently opened a plant in Charleston, South Carolina.

So far, German auto-makers have declined to comment on the tweet.

On July 6, $US34b ($A45.85b) of Chinese goods are set to be slapped with a 25 per cent tariff, while Mr Trump has threatened to tax as much as $US400b ($A539b) of Chinese imports if China does not tighten its intellectual property laws.