Uniquely American Brand Turns to Outsourcing
Harley-Davidson Inc (NYSE:HOG), the motorcycle manufacturer known as an international American icon, has begun shifting its building focus to the East, opening up new factories in Asia in order to get around tariff barriers.
The move will likely cost hundreds, potentially thousands, of future jobs with the company setting its sights on the Asian market as U.S. demand slows.
The company is planning to make half its sales internationally over the next decade. In 2016, international sales accounted for only about one-third of its total sales, while that number registered as less than one-quarter 10 years ago.
Sales grew by 2.3% on the international stage last year, while in the U.S., the numbers dropped by 3.9%.
One of the major draws to producing in Asia is that home-manufactured motorcycles are able to circumvent national tariffs.
In 2011, Harley-Davidson opened a plant in Bawal, India, to avoid the 100% tariff on imported motorcycles. Brazil and Australia have also seen factories constructed on their soil.
The latest factory is being built in Thailand, where the motorcycles produced in the Thai factory will be able to avoid the up-to-60% tariff on imported motorcycles. The Association of Southeast Asian Nations (ASEAN) trade deal will also apply to the goods manufactured in the Thai Harley-Davidson factory, allowing the company to similarly dodge tariffs when exporting to Thailand’s neighbors.
The company’s numbers regarding growth in Asia and the slowdown in the U.S. are grim signs for the American manufacturing sector. If the numbers continue to hold and the tariffs remain as high as they are, there is little incentive for Harley-Davidson to build its product in the U.S.
This continues a recent trend in the American manufacturing sector, where the emerging middle class of Asia and parts of Africa have pushed new factories to be built in those nations to take advantage of new buyers, as well as to avoid punishing tariffs.
President Donald Trump has come out against tariffs that he sees as impediments to balanced trade among countries. He has promised to renegotiate or outright scrap several free-trade agreements, including the North American Free Trade Agreement (NAFTA) between Canada, the U.S., and Mexico.
Trump also held up Harley-Davidson as a uniquely American icon when he had the company executives visit the White House in February.
“We’re proud of you! Made in America, Harley-Davidson,” he said at the time, before the announcement of the Thai factory.
“Even Harley-Davidson Can’t Resist the Tug of Overseas Factories,” The New York Times, May 23, 2017.