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Next Episode in U.S.-China Trade Tariffs: HOG & More

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Monday, June 25, 2018

This week looks to be an important one for housing metrics, with New Homes Sales totals being released after the bell today, the Case-Shiller home price index hitting the tape tomorrow, and Pending Home Sales Wednesday. For this morning, however, we once again look toward increased pressure in the burgeoning “trade war” with China, and market futures are back in the red this pre-market.

President Trump now looks to curb Chinese investment in American companies, or more specifically firms with 25% Chinese ownership. This would include limits on Chinese investment in U.S. companies with “industrially significant technology.” Sectors featuring “Made in China 2025” companies would be targeted, and this new policy could take effect one month from now.

This new reveal looks to get tougher on specific business affected by past trade policies between the U.S. and China, whereby we have endured injustices such as theft of intellectual property (IP) at the hands of Chinese firms looking to beat copyright restrictions in U.S. law. The already imposed steel and aluminum tariffs against most of our trading partners, including Mexico, Canada and the EU, cut a much wider swath of the global trade fabric, and what worries many analysts are the scenarios in which countries like China begin to work in strategic alignment with these countries against U.S. interests.

While major domestic indexes are indeed down in today’s pre-trading — especially the Dow, which aside from Friday’s close in positive territory, looks to see its 9th down day in the last 10 sessions — we also see more than 1% drops in the Hang Seng and Shanghai indexes from overnight. So while we rightly remain focused on challenges here at home, perhaps there is some comfort to be derived from Chinese investors having a hard time with new bilateral trade policies as well.

Aside from market activity, which reliably provides a forward outlook in the U.S. economy about eight or nine months, do we see any direct impact domestically as a result of these trade tensions? Actually, we do: with targeted tariffs on American-made motorcycles, Milwaukee, WI-based Harley-Davidson (HOG - Free Report) foresees costs from these tariffs amounting to $100 million a year. As a result, the company now looks to take at least part of its manufacturing overseas.

This wouldn’t be the first time Harley has come to this decision in 2018, either. When the company closed its Kansas City plant this past winter, it cost the company 800 domestic jobs. Importantly, this decision was made well before trade tariffs but following the windfall corporate tax cuts passed by Congress late last year. These jobs were reportedly outsourced to a new motorcycle plant in Thailand, and further cost savings for manufacturing now that tariffs on Harley products are a reality might be made by relocating additional workforce to the same plant.

Mark Vickery
Senior Editor

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