import tariff implications on Harley Davidson

Topics: Supply and demand, Motorcycle, Price Pages: 72 (10657 words) Published: September 22, 2013
Did US Safeguards Resuscitate Harley-Davidson in the 1980s?
Taiju Kitano

y

Hiroshi Ohashi

z

February 2009

Abstract

This paper examines US safeguards applied to the motorcycle market in the 1980s. After receiving temporary protection by means of a maximum tari¤ of over 45%, Harley-Davidson sales recovered dramatically. Simulations, based on structural demand and supply estimates, indicate that while safeguard tari¤s did bene…t Harley-Davidson, they only account for a fraction of its increased sales. This is primarily because consumers perceived that Harley-Davidson and Japanese large motorcycles were poorly matched substitutes for each other. Our results provide little evidence that safeguard provisions triggered restructuring in Harley-Davidson. Keywords: Safeguard; Tari¤; Random Coe¢ cient Discrete Choice Model; Motorcycles JEL: F13; F14; L13; L68

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Introduction

Ronald Reagan signed a recommendation from the US International Trade Commission (ITC) calling for …ve years of new tari¤s on heavyweight motorcycles in the period over the 1983– 1988 period. This tari¤ relief,

called a safeguard or the escape clause, was intended to protect Harley-Davidson Motor Co. (hereafter, “H-D” the last remaining US motorcycle manufacturer, against Japanese imports. At that time, H-D was ),

in …nancial distress, with merely four percent of the market it had dominated in the early 1970s. The new tari¤s were scheduled to start at 49.4% of the wholesale price and decrease to 14.4% in the …fth year, while Japanese manufacturers were allowed to ship the …rst 6000 cycles per year under the old 4.4% tari¤, an allowance that rose by 1000 units a year. After receiving temporary import relief starting in 1983, H-D came back stronger than ever. Its sales increased dramatically at an annual rate of 10% from 1983 to 1990. We thank Istvan Konya, Eiichi Tomiura, Ryuhei Wakasugi, Yasuyuki Yoshida, Kazuo Wada, two anonymous referees, and participants at various conferences and seminars for comments. We are grateful to Mayumi Ueno Bendiner and Masako Onuki for making the data available for the paper.

y National Graduate Institute for Policy Studies. Email: t-kitano@grips.ac.jp. z Department of Economics, University of Tokyo. Phone: +81-1-3-5841-5511. Fax: +81-1-3-5841-5521. Email: ohashi@e.utokyo.ac.jp

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Indeed, H-D recovered so swiftly that it even requested that the …nal year of tari¤ protection be cancelled. The H-D motorcycle case is now heralded as a great success of safeguard protection. Some, however, are more skeptical of the role of import relief in H-D’ turnaround. H-D produced mostly s

heavyweight motorcycles with engine displacements of over 900 cc in the 1980s. Irwin (2002) argues that, since the motorcycles imported from Japan were mostly medium-weight bikes in the range from 700— 850 cc range, they did not directly compete with H-D products. Reid (1990) documents how H-D saved itself from bankruptcy. When H-D was under the ownership of AMF Incorporated,1 its bikes had a reputation for unreliable mechanics: they leaked oil, vibrated, and could not match the performance of the smoothly running Japanese bikes (Purkayastha, 1987). After H-D was bought by its management team and began operating independently of AMF in 1981, it quickly overhauled its styles, spent more on research and development to create new and more reliable models, and strengthened its marketing and distribution channels. In the critics’ view, these managerial e¤orts, not the import relief, had much to do with H-D’ turnaround. As safeguard s

policy has attracted renewed attention amid the current surge of antidumping cases, it is imperative to empirically resolve these con‡
icting views of the e¤ectiveness of one of the most famous safeguard cases in US history.2
This paper performs quantitative analyses to assess the extent to which US safeguard protection improved H-D’ performance in the oligopolistic US motorcycle market in the 1980s....

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