The Great Tariff Controversy
THE GREAT TARIFF CONTROVERSY
ROUNDUP
Although the actual effect of the Harley vs. Japanese tariff action won’t become clear until the 1984 model year, we now have enough of an outline to report the basic facts, the sides of the question and even a few vague predictions.
History: Harley-Davidson filed for emergency relief against imported motorcycles. Their petition cited large numbers of unsold imported motorcycles, prices that hadn’t kept pace with inflation—and use of Harley styling and advertising techniques by the Japanese.
The International Trade Commission voted 2-1 that Harley was entitled to relief. The ITC recommended relief in the form of temporary additional tariffs for imported motorcycles with engines displacing 700cc or larger. The recommendation was for a sliding scale; 45 percent the first year, 35 percent the second year and on down to ten percent the fifth year. (The present rate is 4.5 percent.)
President Reagan approved the ITC’s recommendation but also took the European manufacturers into consideration. He confirmed the tariff schedule and added a system of quotas. Next year the Japanese will be allowed to send 6,000 heavyweights at the 4.5 percent rate, the second year’s low-tarifl' quota will be 7,000, and so forth.
There are also quotas for non-Japanese imports, also on a sliding scale. Except that the German quota is for 5,000 bikes of more than 700cc the first year and the Germans, read BMW, sell fewer than that here annually. The non-German, non-Japanese quota begins at 4,000 bikes and becomes 8,000 for the fifth year and again, the quota is for more machines than Ducati, Moto Guzzi, Moto Morini and Laverda sell in the U.S.
That’s a quick outline. Filling in the details before casting votes . . .
. . . The laws under which Harley-Davidson sought relief apply only to companies or industries that can be helped. The intent of the ITC is to get a viable company over a rough spot, rather than to protect a company or industry that’s beyond help or hope.
. . . Tariffs are nothing new, nor are they inherently evil. The governments of virtually all countries endorse free trade. The same governments use tariffs, duties and obscure rules in behalf of their own farmers, factories or whoever else says the right things to the right people.
. . . The temporary tariffs apply to all imported motorcycles. It exempts imported powertrains, as shipped from Japan by Honda and Kawasaki for assembly in the U.S.
. . .The intent of Harley’s action was to buy time and improve cash flow, so their really new models can be financed and produced.
. . . None of this is taking place in a vacuum. Just as industries that help our balance of trade airplanes and agriculture for instance want import walls torn down, so are there pleas from industries that aren’t doing well textiles in Japan, cars in the U.S. demanding help against cheap foreign labor.
Thus, we get politics. And negotiation. No government, or country, or citizenship, wants a trade war. Instead, things get worked out. First, the ITC recommended a 45 percent tariff. Then the Japanese government announced the removal of a list of barriers, rules and other impediments working against people who wanted to export goods to Japan. Then President Reagan announced his vote for a tariff and quotas. We doubt the timing here is coincidental. Surely the various agencies and negotiators have bargained over this. We also suspect Pres. Reagan’s action may be a statement in itself. No government worthy of the name will allow its economy to be damaged over a long run, lofty principles or not. And motorcycles aren't vital to the nation’s economic health, not when compared with cars, computers, airframes or citrus products. Hence, a way to deliver a message without causing major disruption.
Disruption. That gets us to the predictions. First, in the initial flurry over the ITC’s action, people spoke without knowing how tariffs work.
They are not imposed at the retail level. A model with a current list price of $3000 would not instantly become a bike with a suggested price of $4500.
Instead, the duties are paid on the bike as it crosses the border, from factory to importer. Next, thanks to creative accounting, the factories and distributors have some flexibility in how various services, as in advertising, handling, etc. are billed.
Finally, the duties are collected when the bike is imported. The tariff won't apply to bikes already in the U.S., which means those unsold '81s, '82s and most of the '83s.
In consequence the price increase at the dealer level wijl be closer to 10 percent. The $3000 bike will become a $3300 bike. This isn't a happy announcement; nobody likes higher prices, be they $3300 bikes, $10,000 economy cars, $100,000 two-bedroom houses or $ 1.50gal. gas.
Except that Honda and Kawasaki already have assembly plants in the U.S. They put together 90,000 bikes here last year, so they could juggle the assembly lines and presto, the big ticket items like the Interstates and KZ 1300s are exempt from both the tariff and the quota. Yamaha and Suzuki could also go into the assembly business. And thanks to the quotas, the non-Japanese importers get the same deal Harley gets.
So. Retail prices of some of the big Japanese motorcycles will increase. Those in the market won't like it. Those who can't afford big new bikes will consider the tariff something of a luxury tax. (Old political slogan: A fair tax is a tax I don't pay.)
Harley-Davidson will get the time asked for, and will come out with truly new models. The dealers will be able to empty their warehouses of unsold ‘81s and k82s at what are suddenly bargain prices. And before you know it the adjusted prices and models will seem as normal as a $20 haircut.
