What Trump's return means for the US motorcycle industry

Expect tougher times for American manufacturers

The return of former President Trump to the White House raises the possibility of some unintended consequences for the US motorcycle industry. While the rhetoric during the campaign and indeed during the last Trump presidency revolved around the use of tariffs to protect American manufacturers, the actual effect could be to worsen the the situation, especially for Harley-Davidson.

Rewind a decade or more, when Harley-Davidson was looking for a way to deal with a declining domestic market for new motorcycles. It looked overseas, in particular to Asia, which had the potential to allow the Motor Company to reach a new and untapped source of customers.

In the late 2000s, the US and India agreed a deal that allowed US motorcycles access to the Indian market, in exchange for concessions on the import of mangos from India. While allowing access, the deal did not adequately address the high Indian tariffs that applied to any motorcycles actually imported to India. This was particularly onerous since US-made Harleys had large engines and so were hit with tariffs of up to 60%.

The solution was to build a factory in India to make smaller-capacity motorcycles - in fact two models were built in India, water-cooled 500cc and 750cc bikes called the ‘Street 500’ and ‘Street 750’ respectively. These motorcycles were sold in India and also exported to other Asian markets, Australia and New Zealand and were also used in the US for rider training.

While this arrangement got Harley access to the Indian market, it did not solve the issue of the tariffs facing the import of the larger-capacity US-built models, either to India or elsewhere in Asia. Those tariffs were around 30 to 40 percent in Indonesia, Malaysia and China, all markets with great potential, having a rising middle class with a desire for luxury brands.

Again the solution was to build a factory, this time in Thailand. By having the Thai factory build the models that were being imported, Harley-Davidson could make us of the ASEAN and ASEAN-China Free Trade Agreements. This solved a few problems for Harley-Davidson. Since the motorcycles had enough local content value to qualify (for Thai purposes) as Thai-made, they could then avail of the zero-rated tariff for import into other ASEAN markets and China under the FTAs. In addition, being made in Thailand meant they could be imported into Malaysia more easily, since Malaysia’s policies had insisted on direct shipment from the US rather than via a regional distribution hub. All seemed well for the new arrangement; but then enter Trump 1.0.

President Trump’s decision to impose tarrifs on the import of foreign steel and aluminium provoked a reaction from other trading partners. This affected Harley-Davidson in two ways. First, its own manufacturing costs increased, since it relied on the import of certain components that were now subject to tariff increases. Second, Europe, its most important market outside of the US, implemented retaliatory tariffs of its own, targeting in particular iconic US brands such as Levi’s, Kentucky Bourbon - and Harley-Davidson.

Harley responded to this in two ways. Initially, it covered the additional cost of the tariffs in Europe. It had no choice in this, since it competes against European brands such as BMW, Triumph, Ducati and Moto Guzzi, all of course unaffected by European tariffs in Europe. This apparently cost it around US2200 per motorcycle sold, clearly unsustainable in the longer term.

For a better solution, Harley-Davidson looked to use the Thailand plant to supply its European market. This would mean that the motorcycles produced in Thailand would be exported to Europe as Thai-made motorcycles, not US-made motorcycles, despite being exactly the same as the US-made model.

Unfortunately for Harley-Davidson, the EU saw through this fairly quickly. It took the position that the Thai-sourced Harley-Davidsons were no different than the US-made models and would accordingly also be hit with the 25 percent, rising to 50 percent, tariff. This whole problem eventually went away once President Trump left office and President Biden was able to resolve the dispute with the Europeans in late 2021.

The return of Trump to the White House with the avowed intention of increasing tariffs raises the prospect of Harley-Davidson again suffering from unintended consequences. The same scenario is likely to be repeated, with retaliatory European tariffs that will adversely affect Harley’s share in its largest market outside the US. It is also likely the EU will again consider that Thai-made Harleys cannot be used to circumvent their response.

Ironically, given the prospect of 100 percent tariffs against Chinese products, it may also mean the Chinese motorcycle industry will actually be the winner. In recent years, Chinese brands such as CF Moto, which cooperates closely with Austrian brand KTM and Benelli, an old Italian brand that is owned by Qianjiang Motorcycle, have increased their presence in markets outside China.

Indeed, Qianjiang Motorcycle makes two Harley-Davidson branded models under a contract manufacturing arrangement with the US company. A 350cc and 500cc model are sold in China and other Asian and Australasian markets, with the 500cc version also doing duty as the replacement for the Indian-made Street 500 in Harley’s own Rider Academy rider training program in the US. Qianjiang, using the brand ‘QJMotor’ brand, has itself entered the US market.

A hundred-percent tariff by the US against China raises the possiblity of China responding in the same was as the EU; that is, by declaring that Thai-made Harley-Davidson motorcycles are no different from US-made models. Since China would impose a retaliatory tariff against the latter as it did during the first Trump presidency (when tariffs were only 25 percent), it may well extend the same retailatory tariff to the former, effectively killing Harley-Davidson in China.

In a real trade war of the kind that is looming, its also an open question as to whether Qianjiang will be able to continue making Harley-branded models in China, whether for domestic or export. Even if Qianjiang was not pressured by China to simply sever its relations with a US company, several other Asian economies have their own motorcycle manufacturing capability; so, presumably having been hit with at least a ten percent tariff on anything they export to the US, those economies may also take the European view that China-made (and indeed, Thai-made) Harley-Davidsons are just a dodge to avoid tariffs.

Harley-Davidson has not had a good couple of years. Its Q3 2024 results show retail sales down in the US and down in international markets. Harley has recently been relying on the international markets, especially Asia, for the growth that it missing in US domestic but that seems to have ended. Its sales in EMEA were down 23 percent and in Asia down sixteen.

A looming trade war bodes ill for the Motor Company.