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Will Trump see the light before he kills Harley-Davidson, others?

Bob Sykes posted a comment against free trade. His view is rather widespread among the self-described U.S. conservatives although I still associate this view with the Bolsheviks. You know, Czechia had tons of companies that used to export to the Soviet Union during communism and they went bust after 1989 because they were not competitive. Western European buyers weren't satisfied with similar stuff as our Soviet comrades. I even bought some of these companies' stocks in the voucher privatization. ;-) (But I also bought some companies that are still around.)

But almost everyone agrees that it's right that a big part of these companies went bust. It's stupid to produce lousy products by obsolete or inefficient assembly lines. We wanted to get modernized, we did. The newer assembly lines swallowed the workers within a few years. These days, Czechia has the lowest unemployment in the world, near 2% by some methodologies. (The economy is overheated partly because of the excessively long 2013-2017 interventions keeping the Czech crown artificially weak.) The exports are higher than two-thirds of the (nominal) GDP. Imports are just a bit lower – we have a surplus. (But because of the outflow of the dividends, some 5% of the GDP, the current account is approximately balanced.)

You surely don't expect a nation like mine to support protectionist fairy-tales. Almost no one does so here, not even the communists. I understand that the situation may be different elsewhere – others may be more likely to view themselves as losers of free trade. But I think that in most such cases, something essential is wrong. Either the uncompetitive companies have been unnaturally supported by the government policies and became dinosaurs. Or they're just lying and they want unfair advantages. Or the country runs endemic deficits which is more possible if it uses the currency that doesn't adapt to the country's needs, like Greece, and so on.

In countries that have the control over their currency, that are non-whining etc., free trade must be the better option.

OK, one of the people who have bought into the protectionist crackpot economics is Donald Trump. No one is perfect. So he started to impose tariffs – showing how tough and visible he can be. I think that everyone agrees. He is visible, he can be tough, and nations pay attention to what's he doing, what he's saying, and what he's tweeting. Hasn't he had enough of that acknowledgement? He should also ask whether his acts are right.

In March, I explained that a trade war wouldn't make America great again. One general point I was trying to convey is that the U.S. trade deficit is basically inseparable from the trustworthiness of the U.S. currency, bonds, and stocks – the higher attractiveness of the U.S. as a "country to invest into" relatively to others.

That's why a big part of the newly printed banknotes, bonds, and other things should be considered U.S. products. If you include an appropriate fraction of these products among the exports – because the foreigners buy them for their money really analogously – you will get a balanced trade balance. This is really how you should perceive it. The "normal" trade balance may only get balanced if America's currency, bonds, and stocks cease to be great! It's because in the environment with floating exchange rates, the trade deficit may also be calculated as the surplus in the export of the financial instruments.

Sadly, since the March blog post, we drifted closer to some trade war although it's in no way terrible so far. Trump imposes tariffs and makes a lot of noise. But a dirty secret is that others can also impose tariffs. And they already do so. They may do it a little bit more silently. But more silently imposed tariffs may be more effective. It seems to make perfect sense to me that the American icons like Harley-Davidson and Jack Daniels are targeted among the first. This president should know something about the U.S. pride so cutting that pride a little bit could be effective to deal with him.

Every man in Prague owns a Harley-Davidson. People at the $1 million to $5 million apartments in downtown Prague – near the Wenceslaus Square – were annoyed by the noise that especially female pedestrians make with their shoes and heels. So they banned them. To reduce the noise, you can only move through downtown Prague on your Harley-Davidson. If you neglect engines and horns, the Harley-Davidsons make basically no noise so the people can sleep nicely. Seven random minutes from the Wenceslaus Square are shown above.

OK, I was kidding. It was some gathering in 2016. Another, 115th anniversary celebration of Harley-Davidson, will start next week in Prague. (Even here in Pilsen, Harley-Davidson owners sometimes gather.) But I am not kidding that in two days, the Lidl supermarkets in Czechia start the "True Taste of America" week. Maybe if you're American, like 1/2 of the TRF readers, you want to check what Central Europeans consider the true taste of America. There is some maple syrup, peanut butter, fried onion rings, mini beef burgers, brownie cakes, spare ribs, chicken wings, milk drinks, cheesecakes, hot dog sausages, BBQ marshmallows, muffins, crunchy clusters, super size flips, Western Gold bourbon whiskey, cruspies, and so on.

It sounds great but I guess that most of these products are made in Germany, not the U.S. – I guess that the whole Mcennedy line of products is just America-themed, not American. (I checked that e.g. the coleslaw salad is made in Germany – but the "American" peanut butter is actually British.) But if we were buying real American products, the composition could be similar. The U.S. is famous for many types of products, including food products, and targeting some of them may be very effective.

But the Harley-Davidsons are probably the best examples of the potential casualties of the Trump trade war. The Time Magazine recently summarized seven threats for Harley-Davidson posed by Donald Trump. He declared a trade war to important trade partners; Harley-Davidson is a symbolic target; it seems appropriate because Trump has been saying he admired these motorbikes; Harley-Davidson riders are Trump voters; the headquarters are in a key state, Paul Ryan's Wisconsin; Harley-Davidson is directly hurt already by Trump's tariffs because they need to import metals; Trump has threatened the company selectively as well: they are losers and he will tax them like never before.

So the company is in quite a trouble. The reasons are sort of obvious but the escalation in the "seventh threat" is ironic, indeed. Harley-Davidson wanted to reasonably solve the tariffs for exports to Europe: they will move a part of the production to Europe. Trump doesn't like it, either, and he tells them that he will tax them like never before.

It sort of seems that Trump doesn't really know what he's doing. It looks like he is playing some kindergarten games, he is trying to push someone to some opinions, and he wants to change the basic reality. But he can't change the basic reality. At most, he can kill the Harley-Davidson company and it seems he is doing the best to do so.

First, because it's such a nice symbolic target of the retribution, Harley-Davidson Co must clearly be considered a victim of Trump's war games. So he should really apologize and help them. Instead, he adds his own personal hostilities on top of the trade partners' hostilities. Is it really sane?

Companies such as Harley-Davidson have a job and it isn't to agree with Trump's trade war games. No competent manager in a similarly important company agrees with such policies. All of them may pretend that Trump isn't such a terrible crackpot when it's needed to flatter the U.S. president. But at the end, their decisions are dictated by efforts to maximize profits. When the exports to Europe become harder by tariffs, it makes sense to move some production to Europe! When something else changes, they also take it into account and the best solutions may change. When there are going to be tariffs and extra taxes on all sides, they're probably screwed.

Trump wrote:

Harley must know that they won’t be able to sell back into U.S. without paying a big tax! [...] The Aura will be gone and they will be taxed like never before!
Right, Donald. You're the U.S. president. You may kill Harley-Davidson. You might probably do so in thousands of different ways. Your power is amazing, it's great. But do you really want to kill the company? Have you thought about the consequences at all? You know, the trade partners are using Harley-Davidson as a target because they assume that you don't really want the company to be killed. But maybe you want to kill it. You want to brag that you have so amazingly big hands that you were able to kill Harley-Davidson. It's so fabulous. ;-) Maybe you also plan to demolish the Washington Monument and place a banner promoting a casino there instead. Wouldn't it be incredible?

Moreover, the tweets above don't seem to understand what the Harley-Davidson plan was. They basically wanted to produce the motorbikes in the country where they're sold, so they should avoid all tariffs. They would still produce the bikes sold in the U.S. in America. So if Trump doesn't like something about it, he may try to selectively punish Harley-Davidson in various ways. But it's dumb to call the punishment "tariffs" because according to the Harley-Davidson plan, almost no products would be exported or imported at all.

In another tweet, Trump suggested that Harley-Davidson must be a great American company that is resilient. I had to laugh out loud. You can do lots of posturing, scream that you have larger hands than another boy in the kindergarten, but the survival of companies isn't determined by postures. It is determined by hard economic facts. Harley-Davidson motorbikes may make lots of noise but the company has a comparable profit margin and sensitivity to financial shocks as many other, less noisy companies. If you sufficiently reduce the revenues and profits in some way, e.g. by some extra tariffs, taxes, or more expensive metals, the company will go bust – much like any other American or foreign company under the equivalent stress!

Well, I think that if Harley-Davidson or companies of a comparable caliber start to experience existential problems, it could be lethal for Trump's reelection. It would have other psychological consequences, too. If the trade war gets too serious, the stock markets will drop, and that will be bad for the ability of Donald Trump to brag, too. So my guess is that Donald Trump will see the light before he kills such U.S. corporate icons. Maybe, he only wants to make some noise comparable to the noise of the Harley-Davidsons. The noise makes him happier. I don't really think that Donald Trump is the kind of a genius he claims to be – he's closer to the genius of averageness than a real genius. But I also have some problems to believe that he is so stupid that he would be really shooting himself in the foot in this way.

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