# Term of the Day: Effective Rate of Protection

Or, when 10% is not just 10%. (Wisconsin/Harley-Davidson edition)

An effective rate of protection (ERP) calculation takes into account the fact that domestic value added might be less than total value added – i.e., there is substantial imported value added in the final good. Suppose a 10% tariff is applied to motorcycles, so that a totally US made motorcycle which originally sold for \$25000 (under free trade) can now sell for \$27500 because of the protection from foreign imports. In this calculation, effective protection equals nominal, i.e., 10%. However, suppose imported inputs used in motorcycles were \$15000. Then the effective rate of protection is 25% (=((27500-15000)/10000))-1).

Perhaps even more important, suppose instead a 10% tariff is applied to the imported inputs into motorcycle. Then the effective rate of protection is -15% (=((25000-16500)/10000)-1). To redress this negative rate of protection, the protection on inputs would have to be coupled with a 6% nominal tariff on motorcycles. The more pervasive vertical specialization (i.e., more specifically, the greater the share of imported components), the more prominent this problem.

And that’s a final good tariff just to even out things domestically. If you want to export the motorcycles, well, you’ll need an export subsidy. Under current WTO agreements, those are generally illegal.

Some things to consider as we go down the path of protection — and protection that is unlikely to reduce the trade deficit [1]

## 158 thoughts on “Term of the Day: Effective Rate of Protection”

1. [anonymous]

Just for the record, dear valuable gentlemen, may I kindly remind you that China owns the U.S.
最好的祝愿

1. Moses Herzog

@ [anonymous]
This must be why the Chinese government likes their own currency so much they trade it in exchange for US treasuries. I always wondered why that was. Thanks for the heads up.

2. rtd

With Dr Chinn’s quantity>quality blogging approach in creating a new post whenever ANYthing changes, I couldn’t help but (comically) think if Dr Hamilton did the same during his extremely beneficial tracking of the Fed’s balance sheet during the crisis. If it were Menzie, he would generate a new post for each marginal daily change in the central bank’s assets/liabilities… hahahaha. With so many blogposts, it’s damn near impossible to have a discussion on this blog as the trash heap mounts evermore. More of Menzie’s emotions taking hold.

1. CoRev

Rtd, Harley is an especially egregious example to use. Harley has a corp[orate goal of moving 50%+ of its production over seas. It is currently building a plant in Thailand and has announced the Kansas City plant closing or production changes. This US Today article highlights what has been happening to Harley/Davidson: https://www.usatoday.com/story/money/cars/2018/01/30/harley-davidson-kansas-city-plant-motorcycle-sales-fall/1078008001/
“MILWAUKEE — Harley-Davidson’s sales fell sharply in 2017 and the company will move ahead with a plan to consolidate manufacturing operations, including the closure of its Kansas City, Mo. plant.” But they are moving that US production to the York, PA plant.
Harley has not fully recovered to pre-recession profitability and has losing market share and profits since 2006. (See the cahart in the article.) Foreign competition and the strong dollar have impacted Harley.
“”Harley is seeing significant pricing pressure, hurting profitability and sales,” she said.”

https://www.throttlexbatteries.com/details.aspx?p=A4D3D61DCEB3C859&ppid=59924&beid=7BD67A6B7D0B565F
“Technically speaking, Harley-Davidson motorcycles sold in the United States are not actually made here, but assembled here. Harley contracts manufacturing of parts to plants located all over the world, including Germany, Italy, Taiwan, Japan, and Mexico. (and soon we can add Thailand assembly.) Those parts are then shipped to Harley factories here. And these are not just accessories, but components for engines, chassis, and wheels. Exactly what percentage of a Harley-Davidson motorcycle is American made, is not exactly known, as each model and model year is different. ”
And more history:
“Harley-Davidson motorcycles are also made in Manaus, Brazil. The factory there opened in 1998 and continues to produce Harley models for the Brazilian market.

In 2011, the company announced plans to open a factory in India to produce the new Street 500 & 750 models.

Harley-Davidson has expressed interest in moving it’s US-based factories overseas due to expensive employee costs. The recession of 2008 caused the company’s value to drop by 43% in 2009.”

So were EU tariffs the cause or just another nudge in the direction Harley was already moving? My guess a slight NUDGE compared to market changes.

1. baffling

trump touted harley as a company that makes things in america. was he right or wrong?

1. pgl

Harley not only made vehicles in America which they exported to the rest of the world, it sourced 93% of its worldwide profits to the US parent. And for this what did they get – Trump’s trade war that raised the cost of inputs and induced the EU to impose tariffs. Even though Trump’s policies have screwed this gold star US multinational, the Usual Suspects here want to blame Harley and not Trump.

Yep – if Trump killed some kid on 5th Avenue in Manhattan, these clowns would blame the kids parents.

2. Moses Herzog

Thank God and Jesus that Paul Ryan and Donald Trump fixed the “tax problem” and did “tax reform”. It’s working!!!! Believe me!!! And Mexican children sitting in ICE cages is stopping the rapists and the murderers. Thank you to the Mexican children sitting in ICE cages for saving us from rapists and murderers. The Mexican children sitting in cages is saving us from rapists and murderers, Believe me!!!! Thank You Trump and Jesus for saving us. I mean, even though we know Trump is King of all creation we can still mention Jesus too right?? We can mention Jesus too, Believe me!!!!

3. pgl

Most companies in the motor vehicle sector source components from 3rd parties. And yes Harley does a little bit of its assembly abroad. That is a common fact pattern – to assemble in the same region as one sells. Otherwise, it would not only be facing the threat of tariffs but also incurring absurdly high transportation costs.

What is amazing is how much assembly does occur in the U.S. And your claim that Harley intended to have 50% of its assembly abroad is not mentioned either in your links nor in their 10-K.

1. CoRev

Pgl Look it up yourself. I’m not doing all your work! I mean as a renowned business modeler that kind of thing should be at your finger tips. Oh wait, not business nut economics. Still the same source though.

1. pgl

You cannot be bothered to read a 10-K? Thanks for admitting you are a complete failure at not only basic economics but basic research skills. I guess the transcripts for Fox & Friends is already a high enough challenge for you!

3. 2slugbaits

It’s exactly complexities such as these that are why I believe Team Trump will eventually gravitate towards import quotas. And import quotas are worse than an ad valorem tariff because the incidence of the quota rises with demand. But a quota is simple to implement and has a kind of intuitive appeal for people who wear MAGA hats and can’t do math. Just ask St. Ronnie.

4. Ed Hanson

Oher things to consider. While Menze’s post is a nice theoretical evaluation on tariff, the assumptions made are not necessarily real world. Take the current motorcycle example of Harley Davidson reaction to the EU retaliatory tariff; it is not raising its price to European distributer. In other words for a time, it is eating the additional tariff cost. Thus, the necessary assumption means that each company, whether importing to the US or exporting out of the US will be making decisions on how much of the new tariffs will be reflected in the final price. Obviously the worst case scenario presented by Menzie will not be true in many cases and certainly not true in general. The real world effect on prices will be somewhere between zero and the theoretical worse case.

Ed

1. 2slugbaits

Unbelievable. Simply unbelievable.

What we need are some MASA hats: Make America Smart Again

1. pgl

Even if his weird assumption is right – someone on the supply side loses big time. Only a fool would call that “winning”.

2. CoRev

2slugs, if you disagree with Ed’s statement call out the specific point and refute it. Otherwise you sound just like another Maxine Waters who has lost all objectivity. Ed gave an example. Refute it. Add value or continue appearing just another angry loser (loser in all its senses).

1. baffling

2slugs is referring to the entire statement as garbage. it is the same issue when responding to you corev. it is one thing to respond to single mistakes-that is easy to do and correct. but when somebody presents entire arguments that are flawed, it is hard to even begin to correct the blunder. as some point, one goes from a typo to a runon sentence, and eventually emerges as gibberish. it is difficult to correct gibberish. those types of statements would not be graded if in an assignment. they would simply be given an F, or asked to resubmit.

1. 2slugbaits

That’s the same problem with trying to correct Trump. It’s one thing when a politician tells the occasional whopper; but when the President averages seven lies a day it becomes impossible to keep up. Maybe that explains why Menzie has to post so many new topics each week. You can’t finish crushing one lie before six more pop up. But it’s difficult for older people who aren’t educated to admit that they actually know so little after having lived so long. They end up resenting educated views and tend to express that resentment at the ballot box. Of course, in the end they wind up cutting off their noses to spite their faces, as we are seeing today with soybean farmers and H-D workers who voted for Trump out of resentment rather than rational interest.

2. pgl

And when someone rebuts what CoRev has said, it just ignores it moving onto something else. Sort of like Trump and his twitter outrages.

3. CoRev

Baffled, if it is so hard just take baby steps if tha’s easier for you in explaining your complain(s). I doubt you can even refute the core of his statement.

4. CoRev

It’s OK Maxine. That ole boogy man won’t get you. Stay disappointed and angry about things you didn’t anticipate, didn’t understand why and can’t change. Every thing will alright after Nov.

2. pgl

“Ed gave an example. Refute it.”

Ed assumed a distributor (which he misspelled) would absorb the entirety of this tariff. This is an example of what – flunking preK arithmetic? Distributor operating margins are generally 2% of sales. So if Ed’s example has any validity – we would see distributors doing business at operating losses = 8% of sales.

NO ONE is stupid enough to believe that. No one except you.

1. CoRev

Pgl, can’t you read anything correctly Ed said: Harley-Davidson… In other words for a time, it is eating the additional tariff cost. ” It is H-D not the distributor. Your comments are just amazing.

3. 2slugbaits

CoRev Ed Hanson’s comment is economically illiterate in many ways. If H-D decides against raising prices in Europe and if H-D is operating in anything like a competitive environment, then they will either have to sell at a price such that marginal revenue is less than marginal cost, or they will have to cut back exports to European customers since the demand curve for H-D motorcycles is downward sloping. If the former, then H-D will lose money and the management team should be fired because they have a fiduciary and legal responsibility to maximize profits. If the latter, then they will have to cut back production, which means cutting back on labor inputs. If H-D is not operating in a competitive environment and enjoys some price discriminatory power, then a decision to hold prices for European customers artificially low constitutes “dumping” according to the WTO. But if H-D is “dumping” after the imposition of a tariff, that also means H-D was engaged in “dumping” before the tariff, in which case the Trump argument gets turned on its head. In other words, Trump wants to punish foreign companies for what he considers “dumping” on American markets, but he’s just fine with American companies “dumping” on foreign markets. Again, that position is untenable within the WTO.

Ed Hanson also said: each company, whether importing to the US or exporting out of the US will be making decisions on how much of the new tariffs will be reflected in the final price.

Maybe Ed Hanson should ask himself what it tells us if 100% of the tariff is not reflected in the final price. Is it because H-D cut back sales to the EU? If so, what does that mean for jobs at the American H-D plant?

Ed Hanson seems to think that prices are set by management whim rather than demand and supply curves that trade-off price and quantity.

1. Ed Hanson

For the rest of us idiots,

“Harley-Davidson, the dominant player in the heavyweight U.S. motorcycle market said earlier on Monday it would not pass on any retail or wholesale price increases in the EU and instead focus on shifting some U.S. production.”

https://www.reuters.com/article/us-harley-davidson-tariffs/harley-davidson-says-will-not-raise-prices-to-cover-tariff-costs-idUSKBN1JL185

If you insist that tariffs must mean a rise in price just read the above quote. It is all I said, along with explaining economic treatments that which use “all other things being the same” seldom if ever model the real world. The Harley-Davidson example should make this clear.

And by the way I am quite impressed how slug now knows the motorcycle business better than those who actually produce and sell.

But really, I find it somewhat comforting that some companies look at the longer term for company growth than the short term drivel demanded by slug.

Ed

2. CoRev

2slugs, bet you can’t explain the error in your assumption: “… then they will either have to sell at a price such that marginal revenue is less than marginal cost, or they will have to cut back exports to European customers..”

Your 2nd part also has a similar error.

3. 2slugbaits

Ed Hanson Reread what I wrote. Passing along the higher tariff as a price hike is one possibility, but that means H-D must either lose money if the market is competitive, or cut back the quantity produced because the marginal cost curve is upward sloping. If the latter, then that means job cuts in Wisconsin. It also says something about H-D’s market power. My larger point was to highlight the real economic implications behind your comment. In other words, you just accepted the naïve version without critically thinking things through.

As to who knows more about a company’s long term growth, after checking H-D’s stock price and sales figures I’m pretty sure that I might know at least as much as H-D executives. Maybe they really are as stupid and economically illiterate as you seem to think they are. If so, then the company should do capitalism a favor and die on the vine.

4. CoRev

And not there goes 2slugs on another rant ridiculing H-D’s management for making BUSINESS decisions with which he disagrees. 2slugs, I know this is probably hard to beleive, but I bet H-D managers received sage economics advice for their crack in-house economists, and their lawyers, and their production engineers, and their planning staff, their share holders, and then weighed them all against their own experience and logic to make their decisions. Notice I listed the economists first, but seriously doubt their advice was weighted that high. But that just me, trained in other fields and having other experience.

The comments and economic personalities providing them have shown a distinct lack of foresight into business decision making. It’s really sad, because where would those economists be without those businessmen and their own specialized acumen?

Maybe that’s why the senior businessman in the country is so misunderstood by y’all?

2. pgl

“the assumptions made are not necessarily real world.”

This could be said of ANY economic model but your alternative assumption is clearly not real world. I guess you do not know that Harley’s distributors are European affiliates of the U.S. parent. Before the tariff, their operating margin’s were likely around 5% of sales. So under your view of this, these affiliates would incur operating losses. How much you want to be that the European authority’s would strongly object?

More likely that the parent decides to let its high profit margin fall slightly but not enough to offset the tariff. Of course that means the stock price of Harley falls. So shareholders and American workers share in the losses from this. Now I guess you might call this winning but I would not.

How is that for living in the real world?

1. CoRev

Pgl, show us where you got this: ” Before the tariff, their operating margin’s were likely around 5% of sales.” Also 5% of sales needs a descriptor, or are these as meaningless in econ as many of your comments?

Man I like your commentary style!

1. pgl

Oh my – you have no clue if you think distributor operating margins are much higher than that. No clue at all.

Call S&P and ask for a subscription to Compustat. It makes checking out the profit margins for distributors easy.

Well maybe not easy for you as one has to know how to use their software.

CoRev – do yourself and your poor mother a big favor. Stop writing this incredibly STUPID rants as they only demonstrate your utter lack of knowledge of anything.

1. CoRev

Yup, and there goes pgl on another runner. Wonder how faraway from the request he will get this time? BTW, questions are now rants? My,my!

5. pgl

If we had to protect Harley from foreign competition – this is an excellent point. Why? Because Harley now has to pay higher prices for inputs given Trump’s tariffs on steel etc. But wait – Harley exports to Europe which is imposing tariffs on their sales to European customers. So Harley gets hit twice from our Trumpian stupidity!

6. Not Trampis

Yes Menzie, People should always understand the difference between nominal and effective rates of protection. For Years we has an organisation called the Industry Assistance Commission which always pointed this out.
We as a country have been a much better economy since we reduced protection.

I say again Trump is no conservative. If he were then he would be all in favour of a rules based trading scheme. Complaints wil always take time but the correct decision is made.

7. pgl

We need a new model of the effective rate of protection and the Harley Davidson case is the motivation. In this case, nation A exports goods to nation B as nation A has a lower marginal cost of production than nation B. Two tariffs were imposed:

(1) Nation B imposes a 10% tariff of these final product goods; and
(2) Nation A imposes a 25% tariff on the intermediate inputs the firms in nation A uses to produce their final output goods.

Intermediate inputs represent 50% of the original economic costs of making these goods in nation A. I have done the modeling yet but it would strike me that companies like Harley Davidson face an ERP over 20%. Trump to his adviser – heckuva good WILBUR!

8. Bruce Hall

The U.S. should not be imposing tariffs (taxes) on imported goods. Rather, the U.S. should follow the Chinese model:
• state ownership of all major industries so that profit is of no consequence https://www.forbes.com/sites/kenrapoza/2016/07/15/chinas-state-owned-companies-still-losing-money/#3b85f1f3b4e0
• keep labor costs very low because no workers unions except the one controlled by the government are allowed because the state controls the industries and interference with the state is criminal . Labor is abundant and cheap in China because even though 300,000 have risen into the middle class and above, this still leaves one billion people living at the poverty level. At any one time, there are an estimated hundred million workers who are unemployed and underemployed, which is about equal to the number of Americans employed in full time jobs. All employees in China have the right under law to join the ACFTU, which claims some 170 million members and is controlled by the Communist Party. ACFTU has a monopoly on trade unionizing in China and creation of competing unions is illegal. Party leaders have ensured that the ACFTU has a monopolist position. http://www.industryweek.com/environment/viewpoint-why-china-cheaper
• no taxes on state owned industries because that would just be transferring money from one government hand to the other
China’s leading SOEs benefit from preferential government policies aimed at developing bigger and stronger “national champions.” SOEs enjoy favored access to essential economic inputs (land, hydrocarbons, finance, telecoms, and electricity) and exercise considerable power in markets like steel and minerals. SOEs have long enjoyed preferential access to credit and the ability to issue publicly traded equity and debt. SOEs also are not subject to the same tax burdens as their private sector competitors. According to some Chinese academics, provincial governments have used their power to manipulate industrial policies and deny operating licenses to domestic and foreign investors in order to persuade reluctant owners to sell out to bigger, state-owned suitors.https://www.export.gov/article?id=China-State-Owned-Enterprises
• eliminate inflation by tightly controlling money supply and interest rates
What makes China unlike Western economies is that the government, not the market, determines the interest rates—in other words, the cost of money—on both deposits and loans. By setting them both artificially low, the government shifts wealth from savers to borrowers. https://qz.com/169958/the-mystery-of-chinas-fading-inflation-explained/
• eliminate research and development costs by using espionage and force technology transfer https://www.infosecurity-magazine.com/news/chinas-ip-theft-tech-transfer/

Who needs tariffs (taxes) on imports? We won’t if we just follow the example of those very smart Chinese competitors.

1. pgl

I see you have zero knowledge of China’s economic history. It used to be a very labor abundant nation with incredibly low wages. But over the last generation, its income per capita has risen considerably and has its wages. Now if you want to talk about actual economics, you need to first learn something called the Solow growth model. Then try applying it to the real world. DUH!

2. pgl

“What makes China unlike Western economies is that the government, not the market, determines the interest rates—in other words, the cost of money—on both deposits and loans. By setting them both artificially low, the government shifts wealth from savers to borrowers.”

This is an incredibly ignorant statement for two reasons. If China did this, its savings rate would be low relative to its investment rate which means it would be running current account deficits. Talk about missing the real world.

BTW had you ANY knowledge of actual economic statistics, you would note China’s interest rates are higher than ours. Incredibly missing the real world you have.

1. Bruce Hall

But I think you are agreeing with my premise that we should emulate China’s economic model.

I’m sorry you didn’t have time to read the article linked here: https://qz.com/169958/the-mystery-of-chinas-fading-inflation-explained/ … and focused solely on the excerpt paragraph. And yes, the U.S. has kept its interest rates artificially low for the past 4 years resulting in the same benefit to investors and the same impact on savers. Regardless, the average account balances in U.S. banks has increased. Those most hurt by this policy are risk averse lower/fixed income.

1. pgl

” And yes, the U.S. has kept its interest rates artificially low for the past 4 years”

Seriously? You sound like some gold bug nut. Or John B. Taylor who ceased being an economist a decade ago. Had we not had low interest rates – the Great Recession would still be occurring.

You knowledge of long-term growth theory is horrific. Your knowledge of basic macroeconomics is even worse.

Other point? All I saw from you is silly statements that would get one an F in freshmen economics.

2. pgl

“Gwynn Guilford is a reporter for Quartz who writes about the global economy, China, and her obsession with the sea. Before joining Quartz, she spent six years in China researching the economy for hedge funds. She also blogged under Andrew Sullivan at The Dish during the 2012 US election. Gwynn has worked in Myanmar, including reporting on the 2007 military crackdown. Her writing has appeared in Slate, the Christian Science Monitor and the Far Eastern Economic Review. Gwynn speaks and reads Mandarin, as well as basic Burmese.”

She is not a monetary economist and her writing shows how little she actually knows. Everything she said about China’s low inflation rate can be said about the U.S. economy or the European economy. Economists from Keynes to Milton Friedman has a much better explanation for low inflation when economies refuse to get back to full employment than her utter gibberish.

9. 2slugbaits

The U.S. should not be imposing tariffs (taxes) on imported goods.

The only intelligent thing you said in that long screed. You should have stopped while you were ahead.

So the following individuals need to take a timeout from posting and spend a few months reading some actual econ textbooks:
(1) CoRev
(2) Ed Hanson
(4) Ed Hanson

1. 2slugbaits

Revised class list:

(1) CoRev
(2) Ed Hanson
(4) Bruce Hall

1. pgl

I thought CoRev was working on his advanced model of the soybean market. You know – the one we have encouraged him to submit to the American Economic Review!

2. CoRev

2slugs, economics does not pay taxes Businesses do. Business decisions affect where and how those taxes are paid. Government policies affect how those business are operated within nations. (See Ed’s comment above.) Perhaps if you and the others here proffering advice on how learning more economics should be tempered with and business and policy studies. It is clear one concentration of knowledge does not negate the others.

From my earlier comment I can conclude that the increasing dollar evaluation and demographics have had a greater and longer effect on Harley’s profitability than the tariffs. At the bottom line it is common sense, and experience that drive these kinds of localized business decision within the policy framework. Experience does include formal training and some may be in economics. If economics has a part it is seldom the driver.

The example of this is the current article’s focus, Harley- Davidson, which is making business decisions trying to reduce their loss of profitability. Tariffs have always been a factor and the current changes are just another part of their business management decisions affecting where to place their investments to improve their bottom line. When tariffs change again they will factor in those changes

1. pgl

“2slugs, economics does not pay taxes Businesses do.”

What a stooopid comment. Actually people pay taxes. Some of these people are workers, some are consumers, and yea we get a very modest amount of tax revenues via the corporate profits tax. But as Mitt the Twit Romney used to say “corporations are people too, my friend”.

1. CoRev

Pgl, again misses the intent: “What a stooopid comment. Actually people pay taxes.” And these people get their incomes from … wait…wait…still waiting????? companies or the Government which is still from a company and its employees. While we are talking about tax payments where do duty payments come from? Companies and… and…????

Pgl, I’m really starting to like this style of meaningless commentary. It’s so easy, don’cha think?

1. pgl

When you write your usual meaningless drivel – what do you expect in return?

Now when you decide to actual discuss actual economics, maybe you will get the courtesy of a meaningful reply.

2. CoRev

Pgl, a renowned economics modeler should easily answer these questions.

I’m really starting to like this style of meaningless commentary. It’s so easy, don’cha think?

2. 2slugbaits

CoRev I can conclude that the increasing dollar evaluation and demographics have had a greater and longer effect on Harley’s profitability than the tariffs

To the extent that the exchange rate and demographics affect H-D’s profitability, those factors are well known and were already priced into H-D’s stock before the effect of the EU tariffs. You need to learn the difference between a deterministic trend and a shock. The drop in H-D’s price was a shock. That’s the value of event studies.

At the bottom line it is common sense, and experience that drive these kinds of localized business decision within the policy framework.

Spoken like someone who believes in the Jed Clampett myth of the wise country bumpkin outfoxing the educated elite. Common sense approaches are almost always wrong. If physics and astronomy followed common sense, then we’d still believe the sun revolves around the flat earth. If medicine followed common sense, then we’d still be bleeding patients, diagnosing patients based on the color of their humors and unaware of a cardiovascular system. Worse yet, people who use the phrase “common sense” in the way you use it don’t even understand its original meaning, which had nothing to do with gut instinct and intuition.

If economics has a part it is seldom the driver.

I’m sure every newly minted MBA will want to echo that thought with their next job interview.

Tariffs have always been a factor and the current changes are just another part of their business management decisions

Longstanding tariffs have already been incorporated into prices and quantities. It’s the new tariffs that are causing the current unnecessary problems for business. And one way businesses factor those changes is buy cutting back on production, raising prices and relocating plants. Is that your idea of “winning”?

1. pgl

CoRev has clearly not bothered to even read the 10-K filing for Harley Davidson. I have and shared some of its key features. Has CoRev bothered to respond to any of this? Of course not. He just cherry picks and bitches. His usual intellectual garbage.

2. CoRev

I’m sorry 2slugs, you’ve stated the obvious again, while ignoring the comment. “To the extent that the exchange rate and demographics affect H-D’s profitability, those factors are well known and were already priced into H-D’s stock before the effect of the EU tariffs…” Uh huh, and how does that refute: “…increasing dollar evaluation and demographics…a greater and longer effect…”?

The rest of your comment isn’t related to anything but your need to make other unrelated, opinionated and useless points. Maxine your slip is showing.

1. 2slugbaits

CoRev The long run trends affecting H-D were already factored into H-D’s declining share price. Understand? The sharp drop yesterday and the sharp drop earlier in the year were due to unanticipated policy shocks.

2. CoRev

2slug, quit repeating what I already said. What are you really trying to argue? Do you need me to spell out p-r-o-f-i-t and s-t-o-c-k p-ric-e-s and maybe d-i-v-i-d-e-n-d-s as long term effects? Do you know anything about business?

Trump deserves a lot of credit protecting U.S. steel, aluminum, and solar panel producers from below market prices. And, Trump responded appropriately to the retaliation from our unfair trading partners, who were warned about their unfair trade practices.

And, it’s extremely short-sighted the glut of steel, aluminum, solar panels, and downstream products, e.g. washing machines, are good for U.S. consumers and therefore should continue.

We need to correct the cheating and stealing to prevent other countries from dominating future industries and capturing good jobs.

Perhaps, many of our trading partners don’t really understand competitive markets, since they’re communist, socialist, or corrupt. Or, maybe, they believe the U.S. can afford to be taken advantage of, since the U.S. economy is much better than their economies.

Of course, the U.S. has benefited tremendously from international trade in the 1980s through the 2000s. We offshored older industries, imported those goods at lower prices and higher profits, and shifted limited resources into emerging industries and high-end manufacturing.

However, China, in particular, wants to dominate future industries, including by cheating and stealing technology, to avoid the “middle income trap.” Consequently, Trump’s rise to power may be timely to avoid the shift of future industries from the U.S. to China. Anyway, eliminating or reducing trade barriers will create real competition that will benefit the global economy tremendously, although the U.S. will benefit the most.

2. baffling

how many times can you comment to yourself peaky? it appears you are lonely and simply talking to yourself. it is your worldview that makes you miserable and lonely. please join society before it is too late. or you are a bot?

3. CoRev

Baffled, feel better after that meaningless rant? If you can’t refute just be silent. It’s a defense mechanism for your ego.

4. baffling

corev, simply point out to corev he may be having some mental instabilities. or he is a bot.

2. pgl

So you hate washing machines now? I guess you wear the same dirty clothes day after day for months. BTW solar energy is now less expensive than Trump’s “clean” coal. Of course coal is not clean and neither is your shirt. Ewwwwwww!

2. pgl

Still more of your utter nonsense about alleged predatory pricing. And yet zero evidence that the price charged is less than production costs. I guess you have no clue what predatory pricing even is.

BTW – I’m sure the folks at Harley Davidson love the fact that they have to pay more for their inputs. After all – a collapsing stock market price is your definition of “winning”.

1. pgl

Robert no relationship to Paul Samuelson is your economic guru. Perhaps the dumbest person on the planet.

2. pgl

OMG RJS wrote a really dumb essay here. He uses the term predatory prices but I’m beginning to think neither he nor you have a clue what this term means. Only one sentence in the entire rant even comes close:

“The Chinese tires undercut prices of comparable U.S. tires by about 19 percent, reports an investigation by the U.S. International Trade Commission (ITC).”

Give Robert no relation to Paul Samuelson an F in economics. Let’s say it cost \$100 per tire to make tires in China and it costs \$125 to make tires in the US. If China charges \$101 for its tires, we get this stoooopid ITC statement. But China is making \$1 per tire in profits.

Predatory pricing requires that the Chinese supplier incurs losses before the definition applies. Of course this is an entire economic literature as to why predatory pricing never pays even in the long-run.

But of course neither PeakStupidity nor Robert no relation to Paul Samuelson have read this literature as neither one of these economic illiterates even know the basic definition.

1. CoRev

Pgl,wrong again! How many times are we going to have to correct you? Always double check these liberals, as they are lying too often. The operative term you even quoted was undercutting.

Here’s an explanation of your error: “Undercutting Versus Predatory Pricing

There’s nothing wrong with pricing a product very cheaply for a period. For many businesses, undercutting is a sensible strategy for attracting new customers and increasing market share, even if it involves incurring a temporary loss….”

Your error: “Predatory pricing requires that the Chinese supplier incurs losses before the definition applies.” A little too simple there Sherlock. There is at least one other factor that has to occur to define predatory pricing. I’ll leave it to your research to list even one.

I’m also NOT surprised you ignored the 1st para. of the article.
“For years, American presidents have faced a China conundrum: How to deal with a country that practices predatory trade without unleashing global protectionism? President Obama’s recent decision to slap high tariffs on Chinese tire imports for three years, starting at 35 percent and dropping to 25 percent in the final year, reflects the dilemma. To do nothing about China’s trade policies is to encourage more of the same. But to attack them too aggressively might undermine U.S.-China cooperation on other issues (from North Korea to financial regulation) and risk a wider trade war….”
President Trump is just following Obama’s lead to forestall: “…To do nothing about China’s trade policies is to encourage more of the same….”

But the funniest failure of your comment was the misinterpretation of the article’s position: “China’s Predatory Trade” to Predatory Pricing. The only one to even mention that was YOU! Another reading comprehension problem? Or just no governor on your TDS eruptions. Better look into that. They might have a medicine for you/it.

2. Menzie Chinn Post author

CoRev: I must confess, this is the first time I’ve heard of differentiating “undercutting” from “predatory pricing”; I think it’s the kind of self-serving doublespeak that goes on in the business world (as opposed to economics discourse). Maybe that’s why it’s on a website called “bizfluent”.

3. baffling

menzie, it is that same kind of double speak that took corev down that dubious discussion about free and fair trade. that was not his original intention. but rather than acknowledge a mistake, he doubled down to argue about “fair” trade until he could not even keep his words straight. i got quite a few giggles watching him contort to his various positions. rick stryker used to do the same, but he was much more professional in his efforts. corev is an amateur in comparison.

4. CoRev

Menzie, you may need to get out more with open eyes. Next time you go to a grocery store beware the entry way displays and the cap end s, because you may be surprised just how often it happens in the super-competitive. I will refrain from comparing the business world and its practices an those of….

I hope you know there are other disciplines operating in this world other than just economics.

5. 2slugbaits

CoRev I think you’re missing the point. The two terms are what’s called a distinction without a difference.

6. CoRev

<Menzie & 2slugs the term is loss leaders in business. You’ve lived with it most of your lives, and if you shop using coupons or sales you’ve probably partaken of them. It was the naivety of such a common and accepted business practice associated with the predatory pricing that amazed me. Menzie said: ” I must confess, this is the first time I’ve heard of differentiating “undercutting” from “predatory pricing”;…” Really, you’ve lived with it and probably partaken most of your life.

2slugs if you actually think: “The two terms are what’s called a distinction without a difference.” also appears amazingly naive. You’ve obviously never shopped for sale items? Do you actually shop for the highest price in an item? Or have you never grocery or clothes shopped?
I’ve tried to be consistent in point out differences in economic and real world business thinking. Mostly because of the claim H-D’s decision to close its KC plant was due to the tariffs, when the decision had been made well in advance of the tariff announcement(s).

Furthermore, the certitude with which you guys speak is limited only to economics (and may be further limited to academic econ.) and actually may not apply in practical applications such as in business practices. An example of the certitude: “Predatory pricing requires that the Chinese supplier incurs losses before the definition applies. Of course this is an entire economic literature as to why predatory pricing never pays even in the long-run.” When history is replete of examples where predatory trade/pricing practices have been and are stillused to dominate an industry or market.

We’re a long way from the perfect world as defined by economics. The real world of business practices, politics, and greed still dominates all people, even economists. Join us out here. You might be pleasantly surprised.

7. baffling

corev, i must say that last monologue was incoherent gibberish. it simply makes no sense, at least in the english language.

11. Gene Laber

In the sentence following the demonstration that the effective rate is equal to the nominal rate, you write, …..” suppose the imported inputs used in cars were \$15,000…”

I assume you mean imported inputs used in motorcycles?

1. pgl

I think he does. Harley Davidson’s 10-K notes it sources steel and aluminum from 3rd party suppliers. But the 10-K does not tell us the ratio of these input costs to total revenues from their bikes. I suspect 60% is a bit high but maybe it is around 30%. WILBUR Ross would put this at 1% but he is confusing a can of Coke with the motor vehicle. YUUUUGE difference.

1. Moses Herzog

I kind of imagine Menzie as too smart a cat to drive a motorcycle, but if he did, I see him as more a BMW guy.

12. pgl

Does Trump want to destroy Harley Davidson?

https://talkingpointsmemo.com/livewire/trump-harley-davidson-taxed-never-before

‘President Donald Trump on Tuesday threatened that Harley Davidson “will be taxed like never before” after the iconic American brand announced it would move some motorcycle production overseas to quell the sting of Trump’s new tariffs. The President also predicted the company’s demise — “they surrendered, they quit!” — and said their “Aura will be gone.”’

Let’s recap the history of this American multinational. Through 2016, they were doing well with total revenues near \$6 billion a year and a rather healthy profit margin. Motorcycles made in America and sold internationally. And how much of their income did they source in the U.S. as opposed to tax havens? Let’s see, 94% of their worldwide income accrued to the U.S. with the other 6% accruing to their distribution affiliates in places like France, Germany, etc. (not exactly tax havens).

In other words, a company that deserve a gold star. So what has happened since Trump took office? First Trump slaps massive tariffs on their inputs. And if that was not bad enough, the EU responds by placing tariffs on the goods Harley exports. So management does something sensible to offset the sting of these tariffs. Does Trump apologize for the damage he has done to Harley? Of course not – he wants to kick this company even harder.

1. baffling

a ear ago, trump hailed harley as a true american company. and now, trump and his ilk will completely forget those comments, and rebrand harley as a socialist quagmire representing all that is evil in the world. hypocrites.

2. CoRev

Pgl, you still haven’t figured out that Harley was losing US business due to demographics and lower priced foreign competitive bikes. Why were foreign bikes lower priced???? It’s an economics test for you. Answer at your leisure, but you will probably do what you usually do — do a runner.

1. 2slugbaits

CoRev What does you comment have to do with the EU tariff? Would the effect of the EU tariff have been any different if H-D was seeing a rise in business and more favorable demographics?

One positive externality that might come from the EU tariff on US steel is that it should reduce exports of American firearms. With a little luck it might put a few of them out of business since a couple of them already have one foot in the grave and the other foot on a banana peel. Two cheers for Eu tariffs!

1. CoRev

2slugs, please follow along with the flow. Keep it up and you will fail this business class.

1. pgl

“There’s nothing wrong with pricing a product very cheaply for a period. For many businesses, undercutting is a sensible strategy for attracting new customers and increasing market share, even if it involves incurring a temporary loss….” – CoRev’s feeble attempt to defend PeakDishonesty.

Now if CoRev actually reads the intellectual garbage Peaky puts out under the heading predatory pricing, he would notice that he just threw Peaky under the bus. Thanks CoRev as you just made my point!

2. pgl

The flow? You have drowned in your utter stupidity. Your mother is calling. She wants to stop embarrassing the family.

3. CoRev

4. Ed Hanson

Corev

Don’t worry about slug failing. We all have read his own words, he knows more about any subject than anybody else. We have been sampled with just the tip of the iceberg – defense, government, economics, and motorcycles. There is no end to the enlightenment he can bring to mankind.

Ed

5. Menzie Chinn Post author

Ed Hanson: On the issues of economics (i.e., those that I can speak to as a mainstream academic economist) that 2slugbaits has commented on, he is much more on the mark than pretty much anybody else who is commenting on Econbrowser. His interpretation of, for instance, trade diversion, is spot on, while for instance yours does not match any textbook I know of. Now, I admit that textbooks are not always right, but I think there is a reason why there is some stuff in textbooks, and some stuff only on the internet and nowhere else…

2. pgl

Hey CoRev – you forgot to mention the number of fish in Brazil. That other companies make bikes is not news. Still HD owned 50% of the market share. Demographics? I guess no one saw that coming.

3. pgl

I sort of laughed at Menzie assuming bikes costs \$25,000 as I can find Harley’s for a lot less. But I did find a \$26,000 price tag for a really nice Harley. But yea this Yamaha goes for only \$18,000:

http://www.motorcycle.com/specs/yamaha/sport-touring/2018/fjr/1300es.html

I get it CoRev! You are actually a sales person for Japanese motorcycles. In other words, you defend Trump’s stupidity because it is part of your job for the Japanese. What a sell-out!

But I trust the White House is giving you inside information so you can short sell Harley stock at the right time. Yep – you are winning! But be careful as the SEC is monitoring each and every one of your communications. I’m sure the orange prison jump suit will look stunning on you!

3. Julian Silk

pgl, I agree with you, but wonder whether this will really happen. What about Carrier, now that it is not in the news?

13. pgl

“China, in particular, wants to dominate future industries, including by cheating and stealing technology”. PeakDishonesty keeps repeating the same old lies.

Menzie recently linked to an interesting discussion by the highly informed and always honest Brad Setser (clearly the opposite of PeakDishonesty) who noted the profits that Starbucks and McDonald’s make by selling goods to Chinese consumers. PeakDishonesty would have you think they collect no royalties. Not true. Royalties for both are between 5% and 6% of sales. Now Brad worries that these royalties end up in Bermuda. They might if they are based on European sales but the good news is that these royalties from Chinese sales end up on the books of the US parents.

There is no stealing going on here. Just a lot of dishonest claims from PeakDishonesty.

1. baffling

” including by cheating and stealing technology”
that same behavior actually occurs here in the good ol us of a. almost all of the major tech firms have been accused of cheating and stealing other peoples technology. categorizing that as a chinese characteristic is improper. it also does appear to be an american business characteristic. am i wrong?

1. baffling

kind of like putting the last nail in the coffin of that company 🙂

unfortunately, time is not symmetric. there is no ability of a mulligan, where we can reset conditions and have that company not be impacted by the silly tariff policy. once the company shuts down and the workers lose their jobs, you cannot turn back the clock and start again. this is the problem with guys like trump, who have no empathy for the damage that they cause. people lose a job, and it is a career trajectory that is damaged and not simply a few lost paychecks. people do pay a price for trumps mistakes, even if he does not feel any pain.

14. 2slugbaits

Here’s a shocker. Trump and CoRev were wrong about H-D shifting production to Southeast Asia:

https://www.msn.com/en-us/money/companies/trump-gets-harley-plans-wrong-in-new-attack/ar-AAzbyZm?ocid=spartandhp

It was because of Trump’s decision to scrap TPP.

And the chart at the bottom shows the negative shock to H-D’s share price following the EU’s decision to retaliate against Trump’s tariffs. Sales of H-D had been slumping for a long time, as CoRev says…but that trend had already been incorporated into H-D’s stock price before this latest dust up.

1. pgl

“Harley made the decision to build the new factory to supply markets in Southeast Asia when it was clear the U.S. would abandon the Trans-Pacific Partnership, the free-trade agreement Trump withdrew from in January 2017, Chief Executive Officer Matt Levatich said”.

Levatich should sue Trump for not only tanking his share price but also serially lying about what management plans have been. Then again Trump would sell his own kids out if that fired up his base.

2. CoRev

2slugs, you are having a really bad day. How was I wrong and how was Trump wrong. We did not both say the same thing, so the broad sweep of your comment is at best questionable. I guess you missed or forgot my earlier “nudge” comment . Just to help your failing ??? After a long list of business decisions, my even analysis was: “So were EU tariffs the cause or just another nudge in the direction Harley was already moving? My guess a slight NUDGE compared to market changes.”

Did you have specific point by singling out H-D’s stock price change? Did you expect something else for a declining company?

1. pgl

He still has not read Fama (1970)? Oh my – just today he admitted he cannot even be bothered to check Harley Davidson’s 10K filing.

When a student refuses to do basic reading assignments – what is a professor supposed to do?

2. CoRev

Menzie, do I or not? Did I leave out/ignore any more points than you have in these various articles? Frankly showing a 3rd party’s packaged futures chart multiple times is not analysis. If you want to show us the predictive results from your model for mid-Nov 18 soybeans then I will admit some analysis was done.

But to date I have yet to see any actual analysis. Just copy and paste, and some weakly or unsupported conclusions about
Trump.

15. Julian Silk

OK, Menzie. There is something to the argument that there are too many of these posts to consider.

But I am going to seriously disagree with you for once. Not out of profound agreement with the Trump tariffs, but because I think you are being a bit too short-run. The day after the tariffs are announced, yes, you are right. But the companies involved, including Harley-Davidson, will move(if they can) or substitute, or innovate technologically. At the factory in Pennsylvania, they have a big robot, but it seems to be exclusively for fabrication, not moving the parts – that could be automated further. In terms of the steel for the spokes, here is the latest on the cold-rolled steel prices

In its two hundred ninety second report, the SteelBenchmarkerTM released 10 steel products
and 3 USA scrap prices. Of these, here are four benchmark prices for hot-rolled band for June
11, 2018:

USA – \$982 per metric tonne (\$890 per net ton), FOB the mill – up \$6 per tonne from \$976
(\$886 nt) two weeks ago, up \$570 from the recent low of \$412 (\$374 nt) on Dec. 14, 2015 and
up \$553 from the low of \$429 per tonne (\$390 nt) on May 25, 2009. It is up \$12 per tonne
from the recent high of \$970 (\$880/nt) on Mar. 28, 2011 and down \$221 (18.4%) from the
record peak of \$1,203 per tonne (\$1,091 nt) on July 28, 2008.

China – \$566 per metric tonne, ex-works – up \$11 per tonne from \$555 two weeks ago, up
\$325 per tonne from the recent low of \$231 on Dec. 14, 2015 and up \$159 per tonne from the
low of \$407 per tonne on Oct. 12, 2009. It is down \$71 per tonne from the recent high of
\$637 on Aug. 22, 2011 and down \$167 (22.8%) from the record peak of \$733 per tonne on
July 14, 2008.

So Harley-Davidson could follow your argument and purchase U.S. steel at this peak, right after the announcement. But why do that? The tariffs hit China, not the whole world, at least for the moment. Further on down, we read

STEELBENCHMARKER PRICES
June 11, 2018
dollars per metric tonne
(net ton) [gross ton] {Euros}
Region: USA, East of the Mississippi
Hot-rolled band: 982 (890)
Cold-rolled coil: 1,116 (1,013)
Rebar**: 741 (673)
Standard plate: 1,020 (925)
#1 Heavy melting scrap: 344 [350]
Shredded scrap*: 369 [375]
#1 Busheling scrap: 399 [405]
Region: Mainland China***
Hot-rolled band: 566
Cold-rolled coil: 625
Rebar: 538
Standard plate: 587
Region: Western Europe
Hot-rolled band: 644 {546}
Region: World Export Market
Hot-rolled band: 599

So Harley can eventually switch its contracts to the World Market (Russia? wouldn’t that be nice?) and the prices won’t rise as much as you are suggesting.

The ripple effects will be bad, granted. But again, nothing is gained by exaggerating.

Julian

1. Menzie Chinn Post author

Julian Silk: This is an interesting, and sensible, argument. Nonetheless, I think the relevant question is not whether there are other suppliers, or rather whether there are other suppliers with cost functions like China’s, and that can provide sufficient amounts of the product. If China is the lowest cost producer of its size, then re-arrangement of suppiers can mitigate, but not overcome, the effect of the tariff.

The relevant paper is Gardner and Kimbrough, Int’l Econ. Review, 1990.

1. pgl

2. Julian Silk

Oh, you are right that there aren’t those suppliers at the moment. We can imagine India trying to do it, and this administration will probably slap a tariff on them, too. But the question is how long you are talking about. If you are dealing with 2018, you are right – they can’t get the steel. But by 2020, which seems to be the whole target of this administration, that could change.

Some amusing stuff about the Gardner-Kimbrough article does make me wonder. Their constant interest rate assumption is reasonable for tractable results, but all the signs now are that interest rates will rise. So yes, that supports you in making capital more difficult to acquire. But there is something else that they don’t come right out and say, and it would be interesting to know what you think of it. (I may teach an international economics course in the fall, so this is not purely just amusement for me.) If I read them correctly, their “As can be seen, the trade-balance-triggered tariff policy results in an improvement of the trade balance during recessions and a worsening of the trade balance during booms compared to free trade”, on their p. 124, seems to be arguing the usual idea, that tariffs are counter-cyclical in their model. Yes, they argue that consumption would fluctuate more because of the tariffs than otherwise, but it looks like GDP or GDO would fluctuate less. Yet, in the actual case, the tariffs are not being applied in a recession, but with a relatively good economy. Suppose they would be taken off in a recession, which is not out of the question. Is what this administration is doing really consistent with the model assumptions?

2. 2slugbaits

Julian Silk I’m not following this comment:

The tariffs hit China, not the whole world, at least for the moment

In H-D’s case they are getting hit with a double-whammy. On the one had the cost of steel and aluminum used to build their motorcycles will increase because of Trump’s tariff against Canadian steel and aluminum. And then the EU is targeting H-D motorcycles.

As to China being an alternative source of supply, see this just posted by Bloomberg:

This is how trade wars start. Easy to start, not so easy to contain and reverse.

1. 2slugbaits

I’ll add that the truly scary part of this story is that some of our trading partners have already moved beyond retaliatory tariffs and are starting to talk about quotas. That’s bad news. It’s also what I predicted was likely to happen as the trade war escalated. Quotas cause much more economic damage than tariffs.

2. Julian Silk

So far, the Russians, and the Indians, are not subject to the tariffs. China is probably H-D’s main source of supply, and I agree that they can easily get out of hand. It is the other countries besides China that may be relevant.

16. pgl

We have documented the fact that the share price of Harley Davidson has gone down since Trump become President. People like CoRev would have you believe this has nothing to do with Trump’s policies – rather it is due to the fact that kids are not motorcycle junkies. If CoRev’s thesis were right, Yamaha Motors would be suffering too. Funny thing, its share price has been rising since Trump became President!

1. baffling

harley’s biggest problem is that their motorcycles are simply toooooo expensive. tariffs and bailing on the tpp certainly do not help the company in that regard.

1. CoRev

And up pops pgl with even another apples to oranges comparison. You have shown many times your business acumen is atrocious. I will again ask you to do the minimal amount of research to define why your Yamaha apples are dissimilar from H-D’s oranges. Do some analysis, please.

1. pgl

How many ways can you contradict yourself? First you whine about foreign competition. But when we note their #1 competitor, you go apples and oranges? Sorry CoRev but I have grown tired of talking to a loud mouth moron.

1. CoRev

Pgl, stop embarrassing yourself. How have you phrased these insults? Even a 2nd grader child of a H-D production employee knows the difference. It has actually been cited here.

I teally do like your style of commentary. It’s so easy, and no need for facts.

17. pgl

Yamaha talks about its motorcycle division:

“Unit sales increased in countries such as the Philippines, Thailand, Taiwan and Vietnam, and declined in developed markets, Indonesia and other countries, leading to unit sales of approximately 5.4 million across the business as a whole, the largest year-on-year increase since 2011. As a result, net sales increased and operating income rose significantly due to expanded sales of higher-priced products in ASEAN countries, Brazil and other emerging markets as well as the effects of cost reductions.”

Our trusted team of Trump defenders earlier were critical of Harley having production facilities in Brazil and consider facilities in Asia. Well it seems their #1 competitor produces sells a lot of bikes there so maybe Harley is just trying to compete.

Leave it to the Trump defenders to criticize efforts by an American company to compete overseas with a Japanese multinational.

1. CoRev

Pgl, for heavens sake find that clue bat. I don’t ever remember criticizing H-D for its expansion plans. If I did please reference it. I’ll just wait for your breathless response, or your disappearance from another failed point, again. Your choice.

1. pgl

You and your right wing trolls have criticized them for establishing plants in Brazil etc. Make up your mind troll as everyone here has figures out you flip flop faster than a pancake chef.

18. pgl

CoRev earlier claimed PeakDishonesty was not talking about predatory pricing but rather “predatory trade”. Neither CoRev nor PeakyBoo even know what predatory trade is. But for those that what to see what this term means, here is an excellent paper:

http://economics.mit.edu/files/5529

“This paper studies how predatory trading aspects the ability of banks and large trading institutions to raise capital in times of temporary financial distress in an environment in which traders are asymmetrically informed about each others balance sheets. Predatory trading is a strategy in which a trader can profit by trading against another traderís position, driving an otherwise solvent but distressed trader into insolvency. The predator, however, must be su¢ ciently informed of the distressed traderís balance sheet in order to exploit this position. I Önd that when a distressed trader is more informed than other traders about his own balances, searching for extra capital from lenders can become a signal of financial need, thereby opening the door for predatory trading and possible insolvency. Thus, a trader who would otherwise seek to recapitalize is reluctant to search for extra capital in the presence of potential predators. Predatory trading may therefore make it exceedingly difficult for banks and financial institutions to raise credit in times of temporary financial distress.”

Lord – our trolls just make up terms which they have no clue what they mean!

1. CoRev

Pgl, it was the article which used the term. But your response goes beyond your typical just plain wrong response to ridiculous. Why? The term was Predatory Trade in context with China, ergo Predatory International Trade you further clarify with practices. It definitely was NOT about financial trading practices, the point of your unrelated reference.

A better simpler definition might be like this: ” Countries selling goods at a price below their … Cost in an attempt to drive out competition and to monopolize a certain market. A practice called dumping I believe would be considered predatory international trade. China was accused of this with their selling of cheap solar panels a couple years ago. Extremely hard to prove.”

1. pgl

I see – keep making up new terms that you cannot explain. You are a like a dog chasing its tail!

First you say it is not dumping and then you say dumping is a good thing/

Lord – you cannot make up your mind. Or you have no mind.

1. de up my about being a liar years ago

Pgl, I made up my mind that you were a liar years ago. Now find those references where I made up a new term that was outside the context of the discussion. Here’s an example: “…“predatory trade”….This paper studies how predatory trading aspects the ability of banks and large trading institutions to raise capital in times of temporary financial distress…”

See how you created a new area to argue that was totally outside the scope of the discussion? Now find ours. BTW, if you think Predatory International Trade is just dumping or predatory pricing below cost, then you are not a very good economist.

Lord – our desperate trolls just make up terms whatever the context which they have no clue why they are not pertinent!

19. 2slugbaits

CoRev Do us a favor. Get a pencil and paper. Draw a demand curve for motorcycles and a supply curve for motorcycles. Now add a tariff. Then draw a line holding price constant at the original equilibrium. What happens to the quantity sold after the tariff is imposed while holding price constant? What happens to profits?

Still not see the problem with what you’ve been saying? Then I suggest you learned your economics from “Honest John’s” late night used car commercials where “Honest John” tells you that he loses a little on each deal but makes it up in volume.

1. pgl

His preK teacher has tried in vain all year to get CoRev to learn to draw anything beyond a horror picture. She gave up on getting him to read.

20. 2slugbaits

CoRev undercutting is a sensible strategy for attracting new customers and increasing market share, even if it involves incurring a temporary loss….”

For the sake of argument, let’s accept your distinction between “undercutting” and “predatory pricing.” You are claiming that “undercutting” is comparable to what retailers call a “loss leader.” You also said that “undercutting” tends to be a temporary price decline. Agree so far? Good. In that case your whole argument collapses on itself. Why? One reason is that H-D clearly does not believe the tariffs are temporary, otherwise they wouldn’t be going to the expense of building a new plant in Europe to avoid the tariff on imported H-D motorcycles. So that strikes out the “temporary’ part of your definition. And you’ve got the idea of “loss leader” all wrong. A “loss leader” isn’t just a temporarily lower price that could actually lose money. A “loss leader” is used to bring customers into the store so that they can buy other goods that are very profitable. For example, right now you might find stores offering insanely low strawberry prices. But then the store is likely to raise the price on shortcakes and whipping cream. Stores give away hams around holidays in order to induce customers to buy more of other items. A “loss leader” item is a pawn that is exchanged for a piece of higher value. Now ask yourself if that fits the H-D case. What other item might H-D be trying to get its customers to buy that might offset a loss on motorcycles? H-D only makes one primary product, so they don’t have the option of lowering the price of one commodity in hopes of making that loss up with higher prices and higher volumes of other items. Also, H-D is a manufacturer and manufacturers don’t do the “loss leader” thing. Grocery stores do “loss leader” pricing; motorcycle manufacturers don’t.

So let’s review:

(1) Assuming your own distinction between “undercutting” and “predatory pricing”, the key is the temporary nature of the price decline. H-D does not believe the price decline is temporary, ergo it is not an example of “undercutting” according to your own definition.

(2) A “loss leader” refers to one item that loses money in exchange for increased sales of other items that earn more money. H-D only makes one commodity, so the term “loss leader” is not appropriate here.

Oh…I don’t know anything about retail sales, but my wife worked 30 years in setting up retail programs for several large retailers.

1. CoRev

2slugs, you were doing so well until you drifted to the H-D example. H-D was not part of the discussion until you interposed it to change the focus from international practices, pointedly China’s use of Predatory Trade practices. From then you H-D comment is nonsensical in the context of the prior discussion.

You do understand the why and how of “loss leaders”, so well done there, but it was never brought up as an H-D issue except by you.

So let’s review:

1) You’ve lost the flow of the discussion, again. Predatory Trades was never directly associated with H-D but by your self in formulating another meaningless counter argument.
2) If you were so familiar with retail sales programs, and you knew it didn’t apply to H-D, why did you associate it with them in your counter argument?

1. 2slugbaits

CoRev But the business principle of selling at a loss was brought up earlier when you came to Ed Hanson’s defense, remember? So while it was not directly part of the thread with pgl, it was indirectly connected.

…there goes 2slugs on another rant ridiculing H-D’s management for making BUSINESS decisions with which he disagrees.

So if you disagree with what I said about Ed Hanson’s comment, let’s hear your explanation for H-D’s decision to keep prices fixed for the EU market. I asked you to show how it was possible to do that without cutting production. You never really answered. And apparently now you’re taking off the table any appeal to “undercutting” or acting as a “loss leader.” So let’s hear your explanation of why H-D would promise to keep prices fixed if it doesn’t involve cutting back production.

Still want to try and defend Ed Hanson against the charge of economic illiteracy?

1. de up my about being a liar years ago

2slugs, did you not just agree that businesses make marketing decisions to maintain market position for a short time period? You then went on to make this case: “In that case your whole argument collapses on itself. Why? One reason is that H-D clearly does not believe the tariffs are temporary, otherwise they wouldn’t be going to the expense of building a new plant in Europe to avoid the tariff on imported H-D motorcycles. ”

2slugs, what’s wrong with this statement? H-D is building the plant NOT in Europe but Thailand. Short term in vehicle manufacturing is usually within a model year or TWO. De we know when the Thailand plant will be producing? Are there other foreign production facilities, Brazil for instance, from which they can export to the EU? Are there other large sources for multiple parts outside the US, which H-D can task with installation on a bike changing the location for final assembly? And, these are just a few of the available business decision options that will eliminate or reduce the impacts of tariffs.

Of course they could just eat the tariff costs for their EU sales and look for other ways to recover that PARTIAL loss their bottom line. Can you tell us how production is reduced for an international firm? Shifted perhaps, but in business production need not be reduced unless sales are reduced for an extended period.

You are replacing economic theory with real life intentional business practices; “let’s hear your explanation for H-D’s decision to keep prices fixed for the EU market. I asked you to show how it was possible to do that without cutting production.” Your replacement was production for PROFIT. Businesses continue to function because of their ability to make a profit, I explained several different ways H-D may plan on using to reduce the profit loss.

You seem to think economic theory supersedes a business manager’s options of rising prices for one safe and profitable product to support a less profitable product. OH WAIT THAT’S NORMAL BUSINESS PRACTICE. Why would a respected economist miss that in his expansive training? It’s clear you and many others here have little to no real world experience on what kinds of options are available for senior managers in a larger multi-product business.

Perhaps it is appropriate for you (and several others) to at least peruse a basic business text book to learn some business fundamentals.

1. 2slugbaits

CoRev H-D is building the plant NOT in Europe but Thailand.

H-D announced that they would build a plant in Southeast Asia because of Trump pulling out of TPP. The other day they announced that they will also build a plant in Europe because of the tariffs the EU imposed in response to Trump’s tariff:

The Milwaukee-based motorcycle maker on Monday said it would build bikes in Europe for the first time ever, blaming retaliatory tariffs by the European Union.
https://www.marketwatch.com/story/harley-davidson-isnt-riding-off-to-europe-simply-because-of-the-trump-tariffs-2018-06-26

did you not just agree that businesses make marketing decisions to maintain market position for a short time period?

If by “short time” you mean a few days or weeks, then yes. But the overseas plants won’t be up and running for a couple of years. No business will run losses for that long.

I explained several different ways H-D may plan on using to reduce the profit loss.

So now you’re saying that “undercutting” and “loss leader” are strategies for H-D???

You seem to think economic theory supersedes a business manager’s options of rising prices for one safe and profitable product to support a less profitable product.

No, I said that if they want to maintain the same price then they will have to cut production in their US plant until their overseas operation is up and going. That means H-D will have to lay off workers. The alternative is to go bankrupt. Did you draw those demand and supply curves yet?

You seem to think economic theory supersedes a business manager’s options of rising prices for one safe and profitable product to support a less profitable product.

H-D only has one significant product…it’s called a motorcycle. You may not appreciate theory because it’s too tough for you to understand (i.e., the Jed Clampett syndrome), but math is math and you can’t escape it…even if your name is Donald Trump or CoRev.

little to no real world experience on what kinds of options are available for senior managers in a larger multi-product business.

There’s an old saying that just because something works in theory doesn’t mean it will work in practice; but if it doesn’t work in theory there’s absolutely no chance it will work in practice. Passing the theory test is a necessary but not sufficient condition. Your comment doesn’t even pass the theory test, so it’s guaranteed to fail in the real world.

You mean the one that “Honest John” used where he lost a little on each deal but made it up in volume?

2. CoRev

2slugs, Market Watch doesn’t say they are planning only considering a move to Europe. You also missed the part where H-D is buying back stock: “Instead, the company chose to raise its dividend earlier this year and buy back shares, a decision that could cost far more than any short-term losses from the U.S. trade dispute with Europe. ”

This is just bait and switch by shifting these options: ” Are there other foreign production facilities, Brazil for instance, from which they can export to the EU? Are there other large sources for multiple parts outside the US, which H-D can task with installation on a bike changing the location for final assembly? And, these are just a few of the available business decision options that will eliminate or reduce the impacts of tariffs. ”
To:
“So now you’re saying that “undercutting” and “loss leader” are strategies for H-D??? ”

You obviously have a reading comprehension issue on par with baffled and pgl.

And this another lie: “I said that if they want to maintain the same price then they will have to cut production in their US plant until their overseas operation is up and going.” The highlighted portion is completely new. So now you have to resort to lying to make a point? Baffled will understand and applaud and pgl won’t even notice as it is too common for him.

Your comment re: theory and what follows is just gibberish. Why?

So let’s recap.
1) exaggerated European plant planned
2) used a bait & switch to claim something not said
5) closed with gibberish

Good job! Read business text book to see how theory, especially economic, may not be as effective as established business practice(s).

21. baffling

and 2slugs stands over top of corev, taunting him, as the referee counts to 10. massive beatdown.

1. CoRev

Baffled, I see you also lost the flow of the discussion. For all your comments of misunderstanding a comment it should be apparent that you are the cause. Read my above answer to understand your comprehension weakness. Liberal anger is palpable. Pgl has used his comment style for as long as I have seen him, you tend to waffle in and out of your anger while tending to wallow more on the angry side.

What is amazing is that you folks don’t understand it was such a major factor in why you lost the past several congressional elections. Deplorables do react!

1. 2slugbaits

CoRev In several of those elections the Democrats actually received more total votes than the GOP. The reason the GOP clings to power is because of gerrymandering, restricting voter rights and the godawful Electoral College.

1. de up my about being a liar years ago

2slugs the god awful originators of the country’s constitution actually anticipated total votes being dominated by a few cities/locales over the whole country, and those god awful fathers of our country considered it a problem, solving with the electoral college.

1. 2slugbaits

CoRev I don’t want to be too hard on the Founding Fathers. After all, they didn’t have as much political science or history to consult; and what history they did have was pretty bad. And they were drunk a lot of the time. Given the hurdles they had to overcome they didn’t do too bad; however, the Electoral College was a bad idea from the “get go” and failed right out of the box and had to be “fixed” almost immediately. And it’s given us perverse results several times since.

anticipated total votes being dominated by a few cities/locales over the whole country

In other words, they wanted to protect the slavocracy.

2. CoRev

2slugs, what a poor reading of history. Why didn’t you say the Bill of Rights was also a mistake? After all you don’t agree with all the rights it defines, and you believe ther are many rights still to be defined.

As I have pointed out many times your opinion matters for very little, because it is so personal and outside the norm.

3. 2slugbaits

CoRev Well, a couple of the Bill of Rights amendments clearly were a mistake; e.g., the 2nd and 9th amendments.

As to history and con law, I doubt that you’ve read a tiny fraction of what I’ve read and studied. And just in case you didn’t know this, Hamilton and Madison weren’t the only ones at the 1787 constitutional convention. You should read some biographies of the other characters. A pretty sad lot. Drunks, depressed melancholy souls who committed suicide, criminals who were one step ahead of the law. One of the delegates to the 1787 convention went on to become a Supreme Court justice while being twice imprisoned and still sitting on the bench (James Wilson, https://en.wikipedia.org/wiki/James_Wilson). And Hamilton & Madison did their fair share of lying too. In their private correspondence they hated the Constitution but felt they had to put up a good PR job aimed at the NY ratification convention because they thought the Articles of Confederation was much worse. But in Madison’s initial (May 1787) draft there was nothing about a Senate or an Electoral College. In fact, they both wanted to abolish the states entirely, but thought it would never fly and they’d have to swallow hard.

If you want to read a fun piece of history, try “The Summer of 1787”. It’s a day-to-day diary like account of pretty much everything the Founders did, thought and wrote over those four months. They went to a lot of drinking parties and picnics. If nothing else, it’s a good way to remind yourself that Madison wasn’t the only one who kept notes…he’s just the one that gets the most publicity.

2. baffling

the beating appears to be so severe corev has lost touch with reality. let’s be clear corev, 2slugs put you in your place and then beat you like a rented mule. continued denial is just a symptom of your stooopidity.

1. baffling

all you had to do was look at his contorting as he moved from free trade to fair trade in an effort to try and hide his stooopidity. at least he make me chuckle at times 🙂

22. CoRev

<Pgl & baffled, you guys amaze me. For several articles we’ve been talking about international trade with several examples given of predatory practices. All you guys see is the pricing> tree of the several examples already provided in predatory forest. Here’s just one hint: CARTEL.