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Harley-Davidson may shift production outside of the US to avoid EU tariffs

Geoff Riley

25th June 2018

Here is a really good contextual example of two ways in which a business can respond to the impact of an import tariff.

The EU has implemented retaliatory tariffs on a range of US goods following Trump's initial move (a classic example of tit for tat in game theory). 

The EU tariff on US-made Harley-Davidson bikes is scheduled to be 31% adding an estimated $2,200 to the average price of a motorcycle exported from the US to Europe.

In the near term, Harley plans to absorb the cost of the tariffs taking a hit on their profits rather than pass on higher prices to customers. This reminds us that with an indirect tax such as a tariff, the producer can choose to absorb the tax by keeping their retail prices the same but taking a lower profit margin on each unit sold.

But going forward, the company has announced that they plan to shift some motorcycle production out of the United States (threatening jobs there) to countries not affected by the EU import tariff.

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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