Tariff troubles: Brands struggle to navigate trade disputes

Other companies are likely to face the same dilemma as Harley-Davidson as protectionist measures loom.

When Harley-Davidson disclosed this week that it plans to shift some production overseas, risking a social media fight with the president of the United States, it was the latest reminder that the bottom line trumps a company’s brand.

The motorcycle company made the decision after the European Union retaliated against President Donald Trump’s steel and aluminum tariffs with a 31% tariff on imported bikes.

In its SEC filing, Harley-Davidson notes that shifting production to international facilities is not its "preference," but if it didn’t do so, the fallout in Europe, its second-largest market after the U.S., would be significant. The company would have to raise costs on U.S.-exported bikes by about $2,200 per motorcycle. Boosting retail and wholesale prices would hurt dealers and reduce customer access.

In the U.S., Harley is struggling. Sales slipped 12% last quarter as its core demographic, Baby Boomers, aged out. Securing its position in Europe was its only option, according to analysts and experts.

"Financial concerns have to override almost everything," says John Truscott, CEO and principal of Truscott Rossman. "You have a responsibility to your shareholders, so that comes first and brand obviously comes second."

Backlash
Harley incurred Trump’s wrath, with the president tweeting his grievances and vowing to tax the company "like never before." However, Milton Ezrati, chief economist at financial communications agency Vested, defangs that threat, noting it’s illegal to single out a business for taxation.

"You can’t close the borders," he says. "American business will follow profits. They will move if they have to, to avoid the retaliation. Whatever you think of the justice of the situation is beside the point."

Harley is promising to work with U.S. and E.U. officials. A spokesperson for the company says it is engaging media strictly to reinforce the message of its SEC filing, emphasizing its purpose of "fulfill[ing] dreams of personal freedom."

Ezrati explains that Harley became the face of the issue for three reasons: it was the first company to make this kind of move; its positioning as a "quintessentially American product;" and Trump’s affinity for symbols. He adds that the decision couldn’t be avoided because companies have to respond quickly to trade wars.

Harley is responding to controversy on several fronts. This week, it made clear that a quote attributed to CEO Matthew Levatich that spread across social media was false. It is also facing internal strife as workers and dealers grapple with a potential loss of jobs.

Meg Wheaton, senior consultant at employee communications specialist firm Gagen MacDonald, recommends a "leader-led strategy" with face-to-face sessions that allow for "honest dialogue, questions, and even some venting."

"This will help maintain the organization’s reputation as an employee-centric company that cares about its people...even when faced with very difficult decisions," she says, via email.

Victoria Sivrais, founding partner of Clermont Partners, contends that shifting production shows Harley-Davidson was supporting its brand by refusing to pass along the costs to customers and dealers.

"The learning I take away from any situation like this is I don’t think there’s any benefit to being the first one out," she adds.

‘There are a lot of American manufacturers in the same boat’
Trade disputes create what Truscott calls a "moving target:" regulatory measures loom, but no one knows what final shape they’ll take.

The U.S. is threatening to impose duties worth hundreds of billions of dollars on Chinese imports, with the first wave expected to go into effect next month. The measures could affect products from the Google Nest to vapes, according to Reuters. Truscott advises companies to assume everything is on the table.

One of his clients has already been affected by a trade dispute with China. Lucerne International, a Michigan-based supplier of door hinges for automotive companies, is in a state of limbo after door hinges were targeted, delisted, and added again during the rollout of tariffs designed to move supply chains away from China.

If enacted, the tariffs would raise the wholesale cost of the company’s hinges by 30%, leaving Lucerne with the decision of shipping everything overseas or shutting down U.S. operations.

To tell the company’s story, Truscott Rossman president Ron Fournier secured profiles of CEO Mary Buchzeiger in The New York Times and The Wall Street Journal.

"There are a lot of American manufacturers in the same boat, and not just automotive," Truscott says.

Trump’s "political theater" is promoting Ketchum to counsel its clients, especially trade associations, about how to read the tea leaves in Washington, says KayAnn Schoeneman, the recently named head of Washington and leader of public affairs at the firm, via email.

"It’s natural to want to fight back and hard, but you have to know how to calibrate for the ‘new normal’ in Washington and distinguish theater to score points from the base from actual policy," she adds.

Meanwhile, Clermont, which focuses on fincomms and specialty services such as M&A, is counseling clients on how to incorporate the effects of tariffs into their financial guidance statements. Sivaris says she is engaging buy-side analysts to understand them, allowing her to match messaging with their expectations.

"It’s a challenge, but it also lets people know how important messaging is," Truscott says. "It’s integral to the relationships we need to navigate. We want clients to be standing and thriving a year from now. From a business development perspective, the doors open a lot easier than a year ago."

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