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How Might Trump Tariffs Impact The Price Of An American-Made Motorcycle?

Cycle World logo Cycle World 3/10/2018 Kevin Cameron
a motorcycle parked on the side of a road: Would you pay a $4 premium for a brand-new Harley-Davidson Fat Boy?© Provided by Bonnier Corporation Would you pay a $4 premium for a brand-new Harley-Davidson Fat Boy?

The recent announcement that imports of steel will pay a 25 percent duty and those of aluminum 10 percent has been greeted by a storm of proofs that this is or is not a good thing.

More important are the responses from the markets. The Dow, which is easily upset by any change, took a significant dive. Stocks of domestic steel and aluminum manufacturers rose on expectation that the tariffs (in effect a limited ban on foreign price competition) will trigger price increases and more profitable operation. Stocks of automakers and others dependent upon price competition in metals nosed over.

Those supporting the metals tariffs suggest they will increase traditional industrial employment. I certainly hope this turns out to be true, but two trends suggest it may not be:

  1. If you were a businessman, would you voluntarily pay anyone to live at the US standard of living when there are cheaper alternatives? This is globalization.

  2. In general, profitable US business start-ups tend to be software-intensive rather than workforce-intensive.

In times past, film shot in auto plants showed auto assembly lines flanked by men maneuvering 150-pound spot-welding machines supported on tool-balancers as they placed the welder’s jaws over the chosen weld locations successively. Today the spot welders are handled and positioned by industrial robots that are tireless, accurate, and pay no attention to union organizers, take no sick days, and do not require 140 lumens of light per square foot of work surface. A modern ideal, indeed, is the “lights-out plant” in which the only time the lights are on is during production-line maintenance.

If a US-made steel-framed motorcycle is roughly 47 percent steel, 40 percent aluminum, and 13 percent other materials by weight, what might be the effect on vehicle price of the new tariffs? A 700-pound bike would then contain 329 pounds of steel, which is going for close to 15 cents a pound. A 25 percent tariff would add 25 percent of this, or 3.4 cents extra per pound, which is 0.034 times 329 equals $11.19, if and only if all the steel in our hypothetical American-made bike were imported. Motorcycles not manufactured here would not be subject to the tariffs.

That same 700-pound bike contains 280 pounds of aluminum, listing yesterday for 96 cents a pound. If a tariff tacks an extra 10 percent onto that, it adds 9.6 cents a pound to materials cost, or 0.096 times 280 equals $26.88. Again, this price increase would occur if and only if all the aluminum in our hypothetical US-made motorcycle were imported.

Thus, if all the steel and aluminum in our notional bike is imported and so is subject to the tariffs, it will add $11.19 plus $26.88 equals $38.07 to the price of our hypothetical US-made motorcycle. Obviously, specialty alloys, such as stainless steels, add cost. The above prices are for basic materials.

Spokespersons for the US auto industry suggest that imported steel and aluminum typically make up 10 percent or less of the materials going into finished US-made autos. If that is also true of US-made motorcycles, then the total materials price hike becomes 10 percent of $38.07, which is $3.81. I think I can find that much under the sofa cushions and by searching the pockets of my winter jackets.

On the other hand, it takes time for the effects of economic change to develop. Seeing their offshore competitors “walled out” behind the new tariff barriers, domestic steel and aluminum producers can potentially raise their prices to reflect the new reality. Over time, our “domestic motorcycle surcharge” could then creep upward from $3.81, toward the full $38.07. But that’s just the price of three large pizzas.

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