Here's How President Reagan Helped Save Harley-Davidson – HotCars
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The former President got involved with Harley-Davidson when the motorcycle company faced fierce competition from Japanese manufacturers.
It's difficult to think of an American President who didn’t turn to trade protectionism and barriers when he wanted to energize a dormant industry or protect a failing one. Sadly, President Thomas Jefferson's Embargo Act of 1807 didn't serve its purpose, and future Presidents continued the trend by imposing their own tariffs.
In 2000, President Clinton imposed punitive tariffs on steel imports. George W. Bush and Donald Trump also followed this same practice. Meanwhile, President Biden maintained Trump’s China tariffs despite inflation and surging prices.
While many Presidents have advocated for greater trade protectionism under the influence of large corporations, few acknowledge that they mostly passed the costs to consumers. Additionally, instead of making struggling homegrown industries more competitive by encouraging them to prioritize investments in research and development, automation and cutting-edge tech, it makes them less efficient because they rely on the government for assistance.
“Most economists believe tariffs hinder trade and economic growth while raising prices for consumers in tariff-implementing countries,” says Investopedia. “This is why their use has fallen dramatically since World War II. The average level of tariffs on industrial goods has fallen from about 40 percent at the end of the war to about 2 percent today.”
To further highlight the disastrous effects of tariffs on consumers, Investopedia presents research conducted by the University of Chicago and the U.S. Federal Reserve, which established that while the washing machine tariffs brought in $82 million a year to the U.S. Treasury, the cost to U.S. consumers was a staggering $1.5 billion a year.
In 1964 President Lyndon B. Johnson created the chicken tax that put a 25 percent tariff on light trucks. It’s worth noting that this tariff is still in place. But light trucks weren’t the only ones protected by Washington and, actually, President Ronald Reagan ordered tariffs on heavyweight Japanese motorcycles in 1983 to protect the Harley-Davidson Motor Co.
“In the first year of a five-year program, tariffs rose from 4.4 percent to 49.4 percent on all large highway motorcycles,” says Milwaukee Journal Sentinel. “The duties were then scaled back in successive years to 39.4 percent, 24.4 percent, 19.4 percent and 14.4 percent.”
Hagerty says that in the early 1980s, because of “self-inflicted problems, namely stagnated engineering and slipping quality,” Harley-Davidson was struggling to keep up with Japanese motorcycles, such as Kawasaki, Suzuki, Yamaha, and Honda. The legendary motorcycle manufacturer sought help from the government and to be fair, Harley needed all the assistance it could get given that the company lost money in 1981 and 1982, and had to fire 1,600 employees, which was 40 percent of its overall headcount.
In the end, Reagan followed the recommendations of the U.S. International Trade Commission and imposed tariffs on imported motorcycles with engines over 700 cc displacement.
“We’re delighted,” said CEO, Vaughn Beals, at the time. “It will give us time that we might otherwise not have had to make manufacturing improvements and bring out new products.”
Evidently, this move infuriated Japan, but instead of rebelling against the unjust move, some overseas motorcycle manufacturers found innovative solutions to avoid the tariffs. Accordingly, Honda and Kawasaki moved some of their motorcycle production to their American facilities. The Japanese manufacturers, according to Hagerty, although unaffected by the tariffs, needed to change their production model to keep up with demand.
Although many people link President Reagan's trade restrictions to Harley-Davidson’s resurgence, the reality is far more nuanced. Indeed, the tariffs helped Harley to some extent, but ultimately, it was the company's tenacity and ambitious restructuring plans that kept the venerable name alive. According to a 2009 report by the Research Institute of Economy, Trade and Industry, Harley’s own efforts—and not the trade barriers—were what increased sales and rescued the motorcycle company. “This is primarily because consumers perceived that Harley-Davidson and large Japanese motorcycles were poorly matched substitutes for each other,” said the report.
In 1987, Harley requested that the Reagan administration remove the trade barriers. “We're profitable again,” said Beals. “We're recapitalized. We're diversified. We don't need any more help.”
Unfortunately, Harley didn't ask the government to eliminate the tariffs as a kind gesture toward Japanese brands, but rather to communicate to investors that the company was self-sufficient and didn't need further assistance from the government. But they say what goes around comes around because in June 2018, the European Union raised the tariffs on Harley-Davidson motorcycles from 6 percent to 31 percent, forcing the bike company to consider moving manufacturing out of the United States. Evidently, this infuriated President Trump, who threatened the company with higher taxes. In the end, things calmed down, but maybe Harley learned something from this experience.
Eugenia Akhim is a luxury car aficionado. She naturally gravitates towards the legendary 911 and the classic Ferrari because they are fun to drive and have a killer aesthetic. In her column, expect to read more about turbo-powered vehicles.