New Delhi: What is it about Harley Davidson and India that gets US President Donald Trump’s goat? After all, the American motorcycle maker owns only a tiny fraction of India’s massive two-wheelers market, and even in the US, it employs only about 5,000 people. And yet, it has managed to play a prominent role in the India-US trade war.
Over the last couple of years, Trump has lashed out at India several times for imposing high customs duty on Harley Davidson bikes. As recently as a week ago, on 11 June, Trump publicly chided Indian Prime Minister Narendra Modi again, calling the import duty “unacceptable”.
Harley Davidson’s share in the US market is also shrinking, but the brand remains deeply popular among Trump’s electoral base. This has given the company a lot of influence in Washington, but also made it an easy target for foreign governments, including India’s.
Harley Davidson in India
Harley Davidson entered the Indian market in 2007 through what was referred to as a “mango deal”. India had allowed Harley to invest in 2007, and in return, the US lifted the ban on India’s mango exports to the US.
But last year, while India reduced the custom duty on Completely Built Units (CBUs) to 50 per cent from the earlier 100 per cent, it increased the duty on Completely Knocked Down units (CKDs) to 15 per cent from the earlier 10 per cent.
Currently, Harley sells 17 models in India, with prices ranging from Rs 5.33 lakh to Rs 50.3 lakh. But 13 of these models are CKD units, and are completely assembled in India. These 13 are relatively cheaper models, and account for most of Harley Davidson’s sales in India.
The four CBU models attract the 50 per cent duty, and India has imported just a few hundred of them in recent years.
“There are four models which come in CBU form, so the volumes are very less. That is a niche segment also… The impact of the CBUs is minimal because it is only the 1600 cc-plus models which come in,” said Sanjeev Rajasekharan, Harley Davidson’s managing director in India.
According to Autopunditz, which compiles the most comprehensive data on motorbike sales in India, Harley Davidson sold 2,676 motorbikes in India during 2018-19, which was down 21 per cent from 3,413 in 2017-18.
Even at an aggregate level, Harley controls only a fraction of the Indian two-wheeler market. Out of the 13 players, Harley Davidson ranks 12th in terms of sales volumes. In comparison, market leader Hero Motocorp sold over 75 lakh two-wheelers in 2017-18, and over 78 lakh in 2018-19.
Also read: India to seek Iran oil waiver when Pompeo visits, US is hoping to foil S-400 missile deal
Trump’s fascination with Harley Davidson
This leads to the all-important question: How has a firm selling just over 2,500 motorbikes become such a major irritant for the India-US trade relationship?
Since coming to power in 2017, Trump has hailed Harley Davidson on several occasions, called it the “pride of the United States”, and hosted its executives at the White House.
Paul Krugman, economist and columnist for The New York Times, made an intriguing observation — that for all the influence Harley Davidson enjoys with the Trump administration, it employs only 5,000 people in the US. To put that number in perspective, the US economy on average hires 2,50,000 people every day, Krugman wrote.
Moreover, Harley’s popularity comes predominantly from the older generation. The firm has struggled to retain its demand among millennials, with its sales declining by 32 per cent in the past year in the US.
So what explains Trump’s love for Harley? The brand continues to be popular among Trump’s core voters in the mid-west and southern US, and is considered an iconic symbol of American culture across that region.
The love for bikes and support for Trump is most evident in a group called Bikers for Trump, which has a following of over three lakh on social media. This group is known to mobilise support for Trump, and most of its members ride Harley Davidsons.
Thus, publicly batting for Harley doesn’t necessarily help Trump create a lot of domestic jobs, but it does make him seem to stand for a symbol of American pride.
Moreover, Harley Davidson is headquartered in the key Republican-controlled state of Wisconsin, making it essential for Trump to project his support.
Easy target for foreign governments
Several other foreign governments have also raised tariffs on Harley Davidson bikes.
There is a long-held logic in trade disputes, where governments retaliate against unfair trade practices of another country by targeting an item that would have some political costs as well.
For instance, in the early 2000s, during an EU-US trade dispute, foreign governments raised tariffs on US oranges. The state of Florida accounts for most of US orange exports, and at the time, Jeb Bush, brother of President George W. Bush, was the governor of Florida. So, targeting oranges meant hitting at the Bush family.
There seems to be a similar logic at play in the case of Harley Davidson.
President Trump has started trade disputes with several countries, and they, in turn, have reacted by targeting a company seen to be close to Trump. Moreover, they are targeting a symbol of the American culture, which is held so dear by Trump and his supporters.
Also read: As Trump & Modi govts tussle over trade, a look at what India imports from where
Oh yeah??? What happened to Trump wanting to “tax Harley-Davidson like they’ve never been taxed before” after he put tariffs on most of the world and H-D decided to start producing SOME of their bikes to sell in certain countries in order to eliminate import tariffs in those countries? NOW he’s concerned about H-D? What a freakin’ hypocrite!
The article proceed The president’s point, even though it wasn’t trying to. Who losses in a trade war, the US that imports very little to India or India that imports a great deal to the US. Countries need to realize no more welfare for them. Either deal with the US fairly it suffer the consequences. Put equivalent tariffs on the importation of India products and the expiration of funds to India. They will be begging for new trade deal within a month. Their economy will crash.
India needs to stop all these protectionist tariffs. If they open the markets it would only help consumers. They need to work out a free trade deal with the US. Both countries would benefit and subdue the China monster!
US does not want a free trade deal. They want a balanced trade deal.
The problem is that USA only has defense equipment and agricultural products to sell. Everything else in the USA comes from China.
1) India cannot afford to buy agricultural products because that will impact its 80% population that lives of agriculture and many of the US products are not a part of Indian cuisine.
2) India cannot depend on US military gear that is expensive compared to the same quality from other sources and USA has in the past refused service and maintenance support because of India’s positions on Pakistan and its neutrality on others. That is a defense nightmare.
You didn’t ask the question why India imposes 50% duty on these niche bicycles? India earns a huge amount of foreign exchange from USA from software outsourcing and enjoys a fairly large trade surplus. Yet it charges duty on minor items from such a benefactor country. On the other hand, India has a massive trade deficit with China and yet it doesn’t impose any similar duty on imports from China.
India imposes such a duty on all countries. By the logic of MFN (WTO precedent), if India reduces it for one country, it will have to extend that reduction to all of them. That said, India imposing 50% duties on luxury car imports is a genuine debate we should have. At some point, the Indian government needs to rethink its protectionist policies.
India needs to find whatever loopholes it can to prefer imports from countries that it exports to. The loophole for MFN/WTO may be a free trade agreement. India should have a FTA with USA. Doesn’t have to be that there is no duty on any import but that FTA can be fine-tuned over time to include or exclude items covered by it.