Lessons From a Previous Trade War

SACRAMENTO, Calif — In a 1988 radio address praising Canadian voters for rejecting a political ticket that described a free-trade deal as “selling out Canada,” President Ronald Reagan noted that “the argument against tariffs” has not only “won nearly universal agreement among economists but it has also proven itself in the real world, where we have seen free-trading nations prosper while protectionist countries fall behind.”

Free-trade supporters (myself included) have touted that clip — and other Reagan speeches — as the incoming GOP administration plans a trade policy that seems lifted from Reagan’s Democratic and union foes from the 1980s. “Tariffs are the greatest thing ever invented,” Donald Trump said at a Michigan campaign rally in September. He called himself “Tariff Man.” He certainly is, as he just announced blanket tariffs on Canadian, Mexican, and Chinese goods.

Of course, tariff supporters are right that Reagan’s actions didn’t always live up to his ideals. In 1983, Reagan famously gave in to pressure from Harley-Davidson Motor Co. and boosted tariffs on imported motorcycles by 45 percent. The iconic company was in dire financial straits, concerned about competition from the Big Four Japanese makers (Honda, Kawasaki, Yamaha, and Suzuki) and unable to deal with its debt load, quality problems, and cratering market share.

Advocates for tariffs still point to the Harley-Davidson protection as a success, as it reportedly gave the company time to rebuild. Harley even called for an end to the tariffs a year early, citing their effectiveness. In 1999, the Bill Clinton White House released a report arguing that the motorcycle tariffs were “evidence that American innovation and effective U.S. trade policy can reap rewards for American companies and American workers.”

That seems unlikely.  At the time, Japanese makers had misread market demand and amassed so much unsold inventory here that the tariff didn’t really affect their products for at least a year, as it didn’t apply to bikes that already were in the United States sitting on dealer lots. European brands such as BMW weren’t affected by the tariffs, as they didn’t sell in high enough numbers to trigger them.

The Japanese makers found innovative end-runs, anyway. Kawasaki and Honda shifted production to their U.S. plants. They mainly tweaked engine designs. Tariffs applied to motorcycles with 700cc or larger engines, given that Harley specializes in the large-displacement category. The duties applied mainly to UJMs — or Universal Japanese Motorcycles (referring to the similar, all-purpose design common among all Japanese manufacturers) — with popular 750cc inline-four engines.

As Hagerty Media explained, the Big Four simply dropped the bore on those engines to bring them to around 699cc, but their “revised cam timing, higher compression, and revised gearing kept performance close to the 750s that they temporarily replaced.” In other words, the tariffs enticed Harley’s competitors to become more innovative than ever. One can argue that they really weren’t serious competitors to the U.S. brand.

I own a Kawasaki Z900RS Café, a newly minted homage to the company’s 1982-83 KZ1000 Eddie Lawson Replica (named after the famous moto racer). The KZ1000 was the kind of technologically advanced Japanese bike that Harley executives apparently feared, but studies show that only 10 percent of buyers at the time cross-shopped Harley and Japanese brands. That’s no surprise.

I also own a Harley-Davidson Softail Heritage Classic. Comparing the two is like comparing an exquisite plate of sushi with a New York strip. The Kawasaki’s 948cc inline-four comes on slow, then screams like a banshee at 6,500 rpm (and it can really take the twisties). By contrast, Harley’s torquey 1,746 cc V-twin pulls like a freight train, but its 728 pounds (versus 475 for the Kawasaki) and limited lean angle make it the ideal choice for relaxed cruising or longer distances. And that Harley is a looker.

So, Harley-Davidson maybe didn’t need protection from these very different products. The company already gained new owners in 1981 (the merciful end of the AMF era) and embarked on a plan to improve quality control, rebuild factories, and improve its model line. As tariffs expired, the country was exiting a recession. Such improper government intervention probably didn’t do much (except politically) to save the legendary manufacturer.

Furthermore, the tariffs — and subsequent devaluing of the Japanese Yen — helped push up motorcycle prices overall, which arguably sparked a longer-term decline in motorcycle ridership. Some analysts argue that by protecting Harley from competition in its core market (heavy, big-engine cruisers, and touring bikes), tariffs encouraged the company to double down on bikes that appeal to its aging ridership and delayed its willingness to expand its appeal.

Indeed, Harley-Davidson has struggled to appeal to younger riders with affordable, smaller, and innovative models. That marketing decision — more than its inexplicable former DEI policies — is a key reason the company sells around half the North American units as it did a decade ago. Whatever the cause of its current problems, it’s not clear if the tariffs delayed or exacerbated them.

Tariffs shouldn’t be judged by the impact on one particular company but on the overall effect on the economy, consumer choice, and our freedom. With tariffs, the government picks winners and losers — just as Harley lost out when Trump’s steel tariffs dramatically raised manufacturing costs for Harley and automobile makers.

Tariff supporters often forget about the size of markets outside of the United States. American consumers buy around a half million motorcycles a year versus 60 million worldwide. Other countries retaliate when our country imposes tariffs. During Trump’s first term, Europe retaliated with large tariffs on American-made motorcycles, bourbon, and blue jeans. Harley then announced plans to build European-bound motorcycles outside the United States. It drew Trump’s wrath but highlights how tariffs can cost more domestic jobs than they save.

Granted, it’s ironic given its history to hear Harley-Davidson’s president and CEO Jochen Zeitz complain (as he did during the 2021 trade war) that, “Imposing an import tariff on all Harley-Davidson motorcycles goes against all notions of free trade.” He’s right, but it would be great if everyone — politicians and business leaders alike — just applied that principle all of the time.

Steven Greenhut is the Western region director for the R Street Institute. Write to him at sgreenhut@rstreet.org.

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