Harley-Davidson likely isn’t the last American company to say it’s moving some operations overseas because of retaliatory tariffs, said Gary Locke, former U.S. ambassador to China.
“You’ll see many more U.S. companies doing that because many countries all around the world are imposing tariffs on American-made products and services,” said he told CNBC’s “Power Lunch.”
Harley said Monday that it was shifting some production overseas to offset the impact of tariffs by the European Union. Those tariffs, which are on more than $3 billion worth of U.S. goods including bourbon, yachts and motorcycles, were enacted by the EU in response to U.S. duties on European steel and aluminum.
On Tuesday, President Donald Trump slammed Harley’s announcement and threatened that the iconic American motorcycle manufacturer will be “taxed like never before” if it follows through. He also claimed Harley was using increasing trade tensions as an excuse to justify changes that were already planned in manufacturing.
Locke, who also served as Commerce secretary under President Barack Obama and was governor of Washington, said what Harley-Davidson and other companies want to do is manufacture goods overseas for sale overseas to avoid paying the tariffs — and not them bring back to the U.S.
Full-blown trade war?
Trade tensions are rising between the U.S. and the rest of the world, including American allies. In addition to the EU, Mexico and Canada were also slapped with tariffs on steel and aluminum.
There have also been escalating tit-for-tat tariff threats between the U.S. and China.
“When we start imposing tariffs, other countries will retaliate, and then we up the ante. They will then retaliate even more and that escalation will lead to a full-blow trade war," Locke said. “In a trade war, the losers are consumers, workers and companies on both sides. There are no winners in a trade war.”
On July 6, U.S. tariffs on $34 billion worth of Chinese goods are set to take effect. Separate measures affecting about $16 billion could also be imposed after a review process. China responded by threatening levies on $34 worth of U.S. goods to also take effect July 6.
That spurred Trump to ask the U.S. trade representative to identify $200 billion worth of Chinese goods for additional tariffs. Beijing has pledged to fight back.
“I don’t think you’re going to have either side blinking for a while. There’s so much individual pride, national pride that’s at stake,” Locke noted.
And it won’t take too much back-and-forth before there are tariffs on virtually everything coming from China, he added. That includes things like shoes, clothes and components for U.S. companies.
Those businesses will “either have lower profits or they’re going to have to raise their prices, which then makes them less competitive all around the world.”
— CNBC's Evelyn Cheng contributed to this report.