EU tariffs force Harley-Davidson to move some production out of US – as it happened

Graeme Wearden (until 2.50 pm) and Nick Fletcher

from on 2018-06-25 16:42 (#3SYMA)

Motorcycle manufacturer warns that EU tariffs will force it to move work overseas, as Donald Trump's trade spat hits US companies

Latest: Motorcycle firm reacts to EU tariffs
Harley: EU tariffs will cost $100m/year in short term
Could be a blow to Milwaukee

Earlier:

5.42pm BST

The escalation of trade tensions has sent investors scurrying for the sidelines, amid growing fears of an all out global trade war.

Reports that Donald Trump planned to block Chinese companies investing in US tech companies and could also restrict tech exports to China set the tone for the day. Comments from the US treasury secretary that the reports were inaccurate did little to limit the damage, especially since Steve Mnuchin suggested the restrictions might not apply just to China.

5.29pm BST

Unsurprisingly in the current circumstances, the VIX volatility index is moving higher:

$VIX spikes ~40% to 19.6. Twenty is long-term avg and market's 'rule of thumb' dividing line between worries/outright fear, if you like. Move is still less than 6 pts so far. This is not (yet) anything to write home about, though coincides with new day low for U.S indices ^KO

4.35pm BST

Amid the increasing trade tensions, things could get worse from here for markets, says Fiona Cincotta, senior market analyst at City Index:

Trade war fears appear to be ramping up almost daily. Initially traders were rather complacent that Trump's threats were just a hardball negotiating tactic. However, he has more than proved that his intentions are far more serious and damaging; this realisation has struck market sentiment hard.

Global equities are falling sharply today, with indices on both sides of the Atlantic succumbing to losses of over 1%. The fear that is driving the markets here is at what point does this end? How much damage needs to be done to the economies involved and global trade in order for Trump to decide enough. This is a huge uncertainty in this very dangerous game of economic "chicken", as investors are starting to see US - Sino relations sink past the point of no return. In the absence of any optimistic news over the global trading climate, we can expect the current sell off to intensify over the coming sessions.

4.13pm BST

Regarding that tweet from US treasury secretary Mnuchin, Chris Beauchamp at IG said:

The new week has begun on a firmly negative footing, as equity indices around the globe suffer heavy losses, with trade wars getting the blame once more. What's more, the US administration itself appears divided as the Treasury Secretary tweets out that planned measures regarding intellectual property will encompass all countries and not just China.

It seems the US is hell-bent on falling out with everyone, increasing the risk that trade wars will do what all the other worries of the past nine years have failed to do - namely stop the great bull market in equities. The usual havens are in demand as investors seek refuge from the turmoil, with the ten-year Treasury yield dipping below 3% once more - investor concerns about what a 3% yield would do seem awfully quaint compared to the genuine concerns about the impact of trade wars.

4.04pm BST

Falling oil prices in the wake of Friday's decision by Opec to increase production - Brent crude is down 1.8% - is another factor in the day's market slump.

But the trade tensions continue to dominate, and the markets may have been too complacent up until now about the impact to the global econom. Neil Wilson at Markets.com made a number of points about the state of play:

First, markets have been pretty relaxed about the trade war escalation and so the events of recent days necessitate a repricing of risk that is arguably overdue.

Second, Donald Trump's call for restrictions on Chinese investment in US companies does mark step up in tensions and makes a full blown trade conflict more likely. Three, taken on their own the restrictions on investments would have a bigger economic impact - i.e. on corporate earnings - than fairly small beer tariffs would if there is no escalation. Four, US equities are still just about flat for the year, which given the massive ramp up through Jan is not a terrible performance. From a technical viewpoint, as long as we see the Dow hold its 200-day SMA - which at time of writing it is managing to do - we're still in an upwards trending channel from the April lows.

On behalf of @realDonaldTrump, the stories on investment restrictions in Bloomberg & WSJ are false, fake news. The leaker either doesn't exist or know the subject very well. Statement will be out not specific to China, but to all countries that are trying to steal our technology.

3.26pm BST

A bidding war could be on the cards for Britain's leading satellite company Inmarsat.

Earlier this month US group EchoStar had a bid rejected by Inmarsat, and since then it disclosed a 3% stake in its target.

3.05pm BST

Wall Street's decline is accelerating, sending other markets lower in its wake, as the global trade tensions continue to grow.

Investors have been increasingly concerned about the fallout from Trump's actions on tariffs, and today's developments - the threat of more restrictions on China and Harley-Davidson cutting some US production - are confirming their worst fears.

2.56pm BST

Shares in Carnival, the world's biggest cruise company, have dropped more than 8% after it cut its earnings forecast for 2018.

In the second quarter it said revenues had risen by 10.4% with earnings per share up from 52 cents a year earlier to 78 cents, helped by higher ticket prices and on-board spending.

2.43pm BST

A weak start to trading in New York:

2.39pm BST

Ding ding! The US stock market is open for trading....and trade war fears are biting.

Shares in Harley-Davidson open over 2% lower after the motorcycle manufacturer announces plans to shift production away from the US due to EU tariffs; says tariffs will add over $2K to the cost of each vehicle exported to the EU

2.31pm BST

Bloomberg points out that Harley's sales in Europe hit their highest level since 2011 last year (as a share of total sales).

Harley-Davidson to shift some production of #motorcycles out of U.S. after EU #tariffs https://t.co/bIbL6M4gDT via @business @tpalazzo #tradewar $HOG pic.twitter.com/JDXDQMmAGS

2.13pm BST

Here's some reaction to Harley-Davidson's plans to move some US production overseas, from former White House press spokesman Tony Fratto....

On this beautiful Monday morning, #TradeWars remain stupid...

Harley-Davidson motorcycles exported to the EU will cost the company about $2,200 more, as it shifts production overseas to offset EU tariffs https://t.co/qFaPSn5bCK via @WSJ

This is how you win a trade war. NOT. Harley-Davidson to Shift Some U.S. Production in Wake of Tariffs - TheStreet https://t.co/KhJtuBOOWV

Trump, last year: "Thank you Harley-Davidson for building things in America."
Tying it to winning WI in 2016: "I want to thank the people of Wisconsin. Great people. Amazing people. And they get it." https://t.co/dlzui62PkQ

1.59pm BST

CNN has a good first take on the Harley-Davidson news:

The company is shifting some production of motorcycles for European customers out of the United States to avoid EU retaliatory tariffs.

Harley-Davidson will move some production out of the US to avoid EU retaliatory tariffs https://t.co/7j8nc9XKOQ pic.twitter.com/Gi941KMopt

1.45pm BST

Donald Trump won't be happy to hear that Harley-Davidson is moving some production out of America.

I just met with officials and workers from a great American company, Harley-Davidson. In fact, they proudly displayed five of their magnificent motorcycles, made in the USA, on the front lawn of the White House.

At our meeting, I asked them, how are you doing, how is business? They said that it's good. I asked them further how they are doing with other countries, mainly international sales. They told me - without even complaining because they have been mistreated for so long that they have become used to it - that it is very hard to do business with other countries because they tax our goods at such a high rate. They said that in one case another country taxed their motorcycles at 100 percent.

1.19pm BST

Harley-Davidson isn't the only US company being hurt by Donald Trump's tariffs.

A nail manufacturer in the mid-west state of Missouri says it has lost 50% of its business in two weeks, thanks to the new tariffs on steel imports.

Trump's tariff on steel imports has caused the country's remaining major nail producer to lose about 50% of its business in two weeks. Company laid off 60 temp workers. It could slash 200 more jobs by the end of July and be out of business around Labor Day https://t.co/yy4LhSgDYI

1.15pm BST

Shares in Harley-Davidson have fallen almost 2% in pre-market trading in New York.

Traders are calculating that absorbing the $100m annual cost of Europe's new tariffs will hurt Harley's profits.

12.59pm BST

We don't yet know how many US jobs will be affected by Harley-Davidson's decision to move some production from America to Europe.

But it's possible that the company's base in Milwaukee, Wisconsin could be hit badly.

Key swing state company moving production out of US after EU retaliates to Trump tariffs. Seems important --> Harley-Davidson to Shift Production of Motorcycles Out of U.S. After EU Tariffs https://t.co/zKYhPvlKoZ via @business

12.32pm BST

NEWSFLASH: Harley-Davidson is planning to move some manufacturing out of America in response to Europe's new tariffs on motorcycle imports.

Harley-Davidson expects ramping-up production in international plants will require incremental investment and could take at least 9 to 18 months to be fully complete.

Increasing international production to alleviate the EU tariff burden is not the company's preference, but represents the only sustainable option to make its motorcycles accessible to customers in the EU and maintain a viable business in Europe.

Harley-Davidson believes the tremendous cost increase, if passed onto its dealers and retail customers, would have an immediate and lasting detrimental impact to its business in the region, reducing customer access to Harley-Davidson products and negatively impacting the sustainability of its dealers' businesses.

Therefore, Harley-Davidson will not raise its manufacturer's suggested retail prices or wholesale prices to its dealers to cover the costs of the retaliatory tariffs.

12.01pm BST

The Stoxx 600 index of European shares is on track for its biggest one-day fall in a month, according to Reuters data.

European car firms are partly to blame, following Trump's threat to impose 20% tariffs on auto imports from the EU.

Over the weekend President Trump indicated that if trade barriers and tariffs against the US were not removed that he would have no choice but to add further sanctions against those countries targeting the US.

11.42am BST

The stock market selloff is gathering pace.

Britain's FTSE 100 is now down 96 points, or 1.2%.

With a troublesome US open on the horizon, the European indices saw their losses intensify as Monday went on.

The FTSE was one of the worst performers at the start of the week. Not only was the UK index dealing with the same trade war fears gripping its peers, it also had to process Brent Crude's 1.2% decline, a move that took the black stuff back towards $74.50 per barrel and left Shell and BP down 1.1% and 1.8% respectively.

11.28am BST

Turkey's stock market is defying today's downturn, after Recep Tayyip ErdoAan was reelected as the country's president last night.

Erdogan is likely to act unilaterally (in politics and economics) without consulting the opposition.

Among the five parties making the parliamentary threshold of winning 10% of votes, cooperation will not be easy. The constitutional reform of April 2017 reinforces the power of the president (abolishing the office of the Prime Minister, allowing direct appointment of top officials, allowing intervention in the legal system and state-of-emergency powers) and its allies in the Nationalist Movement Party in the parliament. Erdogan's "People's Alliance" is projected to win 342 seats out of 600 in the parliament, giving little power to the opposition.

Main messages: election win supportive of the normal 15% rally in equities (in $) after a big rate hike. Capital controls risk low, but not disappeared. Given growth halving (at best) + more serious risk of Brazil/Greek style crisis - this was an election that was better to lose https://t.co/nWBGVLHvxa

10.56am BST

The US stock market is heading for losses when trading begins in almost four hours time.

The futures market suggests the Dow Jones industrial average will drop by 150 point, or 0.7%.

US futures down sharply. pic.twitter.com/YKbtcHyYcD

10.45am BST

China's central bank tried to calm nervous investors yesterday.

The People's Bank of China relaxed the rules on commercial banks, allowing them to hold less cash. That should encourage them to pump more than $100bn of liquidity into the economy, to help Chinese firms.

Chinese stocks on the brink of a bear market. pic.twitter.com/QJ160EQwpo

10.31am BST

After two hours trading, European stock markets are falling deeper into the red.

The FTSE 100 has now shed almost 1%, down 70 points at 7612. Germany's DAX has lost 1.2%, helping to knock the Europe-wide Stoxx 600 down by around 1% too.

The dark mood over global markets returns, on increasing pessimism that a full-blown U.S.-China trade war may be unavoidable.

The latest White House trade restriction against China might be an unprecedented ban of firms, at least 25% Chinese-owned, from investing in "industrially significant" U.S. technology companies.

If the Treasury proposals, outlines of which were reported by the Wall Street Journal, are enacted, Beijing would have little choice but to react in kind. That could mean potential clampdowns on U.S. technology firms active in China, from the smallest to the largest.

9.58am BST

Newsflash: EU banks aren't properly prepared for the risk of a hard Brexit, according to the industry's top European watchdog.

9.40am BST

Ouch: German business morale has deteriorated, as the threat of a trade war casts a shadow over Europe's largest economy.

Munich's IFO institute has reported its business climate index has dropped to 101.8 this month, down from 102.3 in May. That's a sign that German businesses are finding life tougher this year.

Companies were less satisfied with their current business situation. Their business expectations, by contrast, remained slightly optimistic.

The tailwind enjoyed by the German economy is calming down.

The next two weeks could dramatically change the political landscape in Germany and in a worst case scenario even lead to a fall of the government and new elections.

For the economy, this would mean further delays of the urgently needed investments, new structural reforms and strengthening of the monetary union.

Six drops and one stagnation in the last seven months or in other (soccer) words: six losses and one draw. This is clearly not a promising trend. However, as seen last Saturday in the World Cup match between Germany and Sweden, never count out Germany.

Hope dies last, even if it takes until the very last second.

A bit like in the world cup, never count out Germany. But this #Ifo drop is not a promising trend, says ING's @Carstenbrzeski https://t.co/IeOVYutTCe

9.20am BST

Even before these latest threats, there were concerns that trade war fears are hurting the global economy.

Yesterday the Bank of International Settlements (which represents central banks) warned that growth could falter if nations imposed more protectionist measures on each other.

"Indeed, there are signs that the rise in uncertainty associated with the first protectionist steps and the ratcheting up of rhetoric have already been inhibiting investment."

8.43am BST

The Wall Street Journal says the Trump administration is determined to protect US companies from having their tech secrets snaffled by Chinese rivals.

We've got trillions of dollars seeking our crown jewels of technology," said White House trade adviser Peter Navarro last week. "There has to be a defense against that."

According to the Rhodium Group consultancy, Chinese foreign direct investment in the US plunged more than 90 per cent to just $1.8bn in the first half of 2018 compared with the same period last year.

In 2016, Chinese companies made a record $46bn in foreign direct investment in the US. The exact scope of the investment measures has been the subject of internal discussions in the Trump administration in recent days, say people familiar with the debate. It is unclear how quickly restrictions would take effect and if they would apply to Chinese investments in venture capital funds, which provide much of the seed money for US technology start-ups.

Like the tariffs that Trump imposed on $50 billion in Chinese imports - and those he has threatened to impose on $400 billion more if Beijing retaliates - the new investment restrictions and export controls are intended to pressure China to stop unfair trade practices that threaten the United States' technological leadership. Trump is expected to invoke his emergency powers to protect national and economic security to put the restrictions in place.

But the administration is already getting pushback from bureaucrats who think it would be a misuse of the export control system, and from businesses that fear the approach will further disadvantage U.S. firms trying to enter the Chinese market

8.23am BST

Trump's latest threat against China has hit European markets.

Shares are down across the region in early trading, with Britain's FTSE 100 and Germany's DAX both losing 0.6%.

In the latest escalation of the trade war Trump has decided to take aim at Chinese investments. A draft series of restrictions on inbound Chinese investments are due to be published later this week, in a move which could have great long-term consequences on the US - Sino economic relationship.

Once again details remain very sketchy, with the scope of such a measure still under discussion. It is now very difficult to get away from the fact that neither side has any intention of backing down in this game of economic "chicken".

8.01am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

The twin initiatives, set to be announced by the end of the week, are designed to prevent Beijing from moving ahead with plans outlined in its "made in China 2025" report to become a global leader in 10 broad areas of technology.

The Treasury Department is crafting rules that would block firms with at least 25% Chinese ownership from buying companies involved in what the White House calls "industrially significant technology."

#FTSE100 called -40pts at 7642 with oil lower after OPEC, GBP flat and metals lower on multiple trade war threats pic.twitter.com/0cPHmsh8Zx

The United States is insisting that all countries that have placed artificial Trade Barriers and Tariffs on goods going into their country, remove those Barriers & Tariffs or be met with more than Reciprocity by the U.S.A. Trade must be fair and no longer a one way street!

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