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What It Really Means for Harley-Davidson Now That Trump Has Killed the Trans-Pacific Partnership (TPP)

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An Asphalt & Rubber reader sent me link recently, outlining how President Trump’s pullout from the Trans-Pacific Partnership (TPP) would adversely affect international sales for Harley-Davidson.

At first I was just going to post a quick synopsis and send you all to read it for yourselves, if you wanted to dive deeper into the meat of the story. But then, I did some digging of my own.

The story, done by Forbes, doesn’t connect the dots too well. And while I agree with the author’s ultimate point, the reasoning he uses to get there is fairly flawed.

His argument boils down to the fact that the TPP would lower import costs for brands doing business in Asia, and since Harley-Davidson sells 40% of its bikes in the Asian market, it would therefore benefit from the USA becoming a TPP signatory.

The issue of course isn’t as cut-and-dry, and requires a bit of digging into what markets would become more favorable for Harley-Davidson, and where the future of the Bar & Shield brand resides. Buckle-up, because here we go.

Selling Americana, Abroad

To dig into this topic further, let’s Tarantino the issues, and start with the future of Harley-Davidson. The US market for Harley-Davidson is looking bleak, with sales showing a solid flatline over the past four years, at roughly 170,000 units each year.

Over that same time period though, sales outside of the United States have shown fairly steady, though modest, growth each year. However, one shouldn’t stop the analysis here.

Sales in Japan and Europe combine for nearly 50% of Harley-Davidson’s sales abroad, so the fact that they have been growing by only modest amounts over the past few years – Europe has netted negative over the past four years – hides the true progress that the American brand is seeing in some foreign lands.

As it relates to the TPP, the Asian Pacific (minus Japan) has seen solid growth in sales since almost before the Great Recession. It is here where Trump’s decision to pull out of the TPP comes to weigh on Harley-Davidson.

The iconic American company now sells over 32,000 units each year in the Asia Pacific Region (as Harley-Davidson defines it), 22,000 of which were outside of Japan.

That means that roughly 25% of Harley-Davidson’s business is being done in ASEAN countries, which is a sizable boost from the roughly 11% of bikes sold abroad back in 2008.

With this said, it is fair and accurate to surmise that the Asia Pacific Region is not only important for Harley-Davidson, but it is also a growth center for the brand.

Ergo, the demise of the Trans-Pacific Partnership is a bad outcome for Harley-Davidson, right? Well, that’s not as cut-and-dry either. Like I said earlier, this is a tricky one.

TPP for Me, Motorcycle for You

The biggest advantage of the TPP for a brand like Harley-Davidson would be the free trade aspects of the agreement. Under the TPP, the relevant motorcycle tariffs between the TPP countries would be 0%. That’s right, zero.

This would again suggest that the TPP was a good deal for Harley-Davidson, but again…we can’t jump to conclusions.

As I said before, one-third of Harley-Davidson’s Asian sales are going to Japan, and while Japan was one of the first countries to ratify the TPP, it however does not currently tax the importation of motorcycles from the USA.

This means before it even gets out of the box, the TPP won’t affect roughly one-third of Harley-Davidson’s sales in the Asian market.

Instead, the bigger concerns come in the form of tariffs in markets like India (100% tariff), Thailand (60%), Indonesia (40%), China (30%), and Taiwan (20%). The kicker though? None of these countries are part of the TPP free trade agreement. 

To find TPP signatories in Asia, we have to look at countries like Brunei, Japan, Malaysia, Singapore, and Vietnam.

However, Japan and Singapore are already free trade states with the USA. So, the big progress for Harley-Davidson would come from Malaysia (30% tariff) and Vietnam (40%).

Malaysia and Vietnam aren’t small markets for Harley-Davidson, and those tariffs are certainly inflating the price of the American brands motorcycles in those regions. But does the TPP really fix a problem here? Again, the answer is solid maybe.

Side-Stepping the Issue

The thing is, without the TPP, Harley-Davidson will continue what it has already been doing: bringing Complete Knock Down kits (CKDs) to strategic markets, where there are already favorable trade agreements in place for them to exploit.

This means that unfinished bikes are delivered from the USA to a country like India, where local workers finish the last few assembly pieces to create a finished motorcycle.

According to international trade, CKDs are bike parts, not completed motorcycles, and are thus subject to different (i.e. lower) tariff rate. Each country is a little different in what qualifies as a CKD, but usually it means minimal assembly is required on the part of the CKD factory.

From here, it is all about working the system. For example: by completing the Harley-Davidson CKD in India, the country of origin for that motorcycle now becomes India, not the United States.

This allows a brand like Harley-Davidson, who is building bikes in India, to take advantage of the Asian free trade agreements that India has signed.

Luckily for Harley-Davidson, the recent ASEAN-India Free Trade Agreement creates one of the largest tariff-free zones in the world, and it sees India joining the bulk of the ASEAN countries in establishing a marketplace where goods between these 10 countries can be sold without import duties. Boom goes the dynamite.

This is why we see Harley-Davidson with CKD and manufacturing plants in strategic countries like Brazil, India, and Australia, which are not only big markets in their own right, but signatories to key local free trade agreements that Harley-Davidson can use to side-step protectionist policies.

The net effect? Where the fear of the TPP was that it would erode American jobs, in the case of Harley-Davidson, it means that bikes that were destined for the Asia-Pacific Region, which could have been built in the USA, will now be produced closer to the end consumer.

Other Affects of TPP

The bulk of the talk concerning the TPP agreement covers these import tariffs by other countries, but we should also point out that the TPP also affected the import tariffs here in the United States.

The most obvious effect here is in the United States is our tariffs on foreign motorcycles.

Yes, we still have the “Harley-Davidson” tax from the Ronald Reagan administration, where domestic motorcycle brands (the only one being Harley-Davidson, at the time) were protected by a 49.4% tariff, which was a 10x increase over the previous tariff amount.

Today, we tariff foreign motorcycles over 700cc with a modest 2.4% rate – though that is enough to add several hundred dollars to a motorcycle’s cost (close to $390 for a bike like the 2017 Honda CBR1000RR). It should be noted, we apply the same tariff to European bikes, as we the Japanese.

Under the Trans-Pacific Partnership though, that 2.4% rate for Japan was set to expire in five years – a pleasant development for brands like Honda, Kawasaki, Suzuki, and Yamaha, who are struggling with sales in the the United States.

Given the current market position of Harley-Davidson, it is hard to see how the signing of the TPP would have materially affected Harley-Davidson sales in the United States, especially considering that the customers who are buying the Bar & Shield brand’s bikes, are primarily doing so in order to latch upon the Harley-Davidson brand identity.

The reality is, in terms of its effects on domestic business, that the TPP would not only had a positive effect on the US motorcycle manufacturing business, by bringing CKD assembly and manufacturing jobs in India back to the USA, but it also would have had a positive affect on the overall US motorcycle industry, by lowering the cost on roughly half the new “heavyweight” motorcycles sold here.


Obviously, the Trans-Pacific Partnership is a much more complex issue than what was simply at stake for the American motorcycle industry, and I don’t come to you today with a beacon of answers to this hot-button topic. Instead, I encourage you to think critically.

As we have seen with the proposed tariff on imported European motorcycles (all because of a decade-long fight over hormones in beef, I should say), this intersection of law, politics, and sociology is extremely complex, and so often it means that pulling on one string means affecting many other threads.

I caution you that there is a lot of misinformation in this space, even from reliable new organizations. This is because of two factors: 1) international trade is incredibly complex, 2) and few in the mainstream media actually understand all the intricacies of the motorcycle industry. 

When we see headlines that say “sales are booming in India for Harley-Davidson,” we should understand that when total sales in a country are below 3,000 units, and the act of adding just 1 dealership to the 24 that are already exist – it is very easy to move the needle in a big way.

Statistics don’t lie, but they can easily be misrepresented by liars.

Similarly, when someone says that “Harley-Davidson doesn’t pay the 100% tariff in India” understand that while the Bar & Shield brand might no longer import completed motorcycles to India (and thus be subject to a 100% tariff), the American brand still has to jump through significant hoops to bypass that issue, and thus pays indirectly…as we all do.

It should be noted that the author of this post got a B+ in International Trade Law while in law school, mostly on accident, and that he has no clue what you’re talking about when you say that you only purchase “free trade” coffee.