CATCo Share News (CAT)

By Rajesh Kumar Singh

CHICAGO, March 7 (Reuters) - When Donald Trump becamepresident last year he vowed to make American manufacturinggiants, such as Harley-Davidson and Caterpillargreat again. But a year later, the two companies stand to take ahit from his policies.

Trump's plan to impose import duties of 25 percent on steeland 10 percent on aluminum to protect U.S. producers have leftconsumers of the metals worried that the higher tariffs willinflate their costs and make them less competitive in exportsmarkets.

Take Harley-Davidson. Struggling to overcome the slump inU.S. demand, the company is aiming to boost sales of its iconicmotorcycles overseas to 50 percent of its total annual volumefrom 39 percent currently.

But the new tariffs, which the White House has said Trumpwill authorize by the end of the week, could place the companyin the middle of a trade war, with the European Commissionthreatening to slap duties on Harley's motorcycles.

European business accounted for about 19 percent of Harley'smotorcycle sales last year. Harley and Caterpillar sharesslumped on Wednesday as it appeared Trump would move forwardwith tariffs.

"We support free and fair trade," Harley said this week."Import tariffs on steel and aluminum will drive up costs forall products made with these raw materials, regardless of theirorigin."

The proposed tariffs are putting steel suppliers at oddswith their customers. William Hickey, whose companyLapham-Hickey Steel supplies to both Caterpillar and its U.S.competitor, Deere & Co, supports Trump's tariffs and saidthey should be applied without any exception or exemption.

"Chinese imports are killing the domestic producers," hesaid. "In fact, the volume of steel produced in the U.S. dwarfsin comparison to the imports from China."

But the manufacturers' fears are supported by the ThomsonReuters Global Industrial Index, which hasfallen about 2.0 percent since the end of last month.

CAT'S EXPORT RISK

In Caterpillar's case, more than half of its machines aresold outside the United States. The proposed tariffs would notonly increase imported steel prices, but also domestic steelprices, putting the company at a disadvantage against itsnon-U.S. competitors, Caterpillar's director of investorrelations, Amy Campbell, said.

Dennis Slater, president of the Association of EquipmentManufacturers (AEM), said he fears that tit-for-tat retaliatorypolicies also could hit U.S. farm exports, exacerbating thetroubles of farm equipment makers, which have been battling weakdomestic demand for the past four years.

The AEM represents both Caterpillar and Deere. Slater saiddomestic steel prices have been on the rise for a while inanticipation of the tariff increases.

Caterpillar's supply costs rose at their fastest pace in atleast four quarters in the three months ended December. Theannual increase in Deere's costs in the latest quarter was thesteepest in at least five quarters.

Caterpillar said it was still assessing what impact thetariff hike would have on its supply costs.

In the meantime, it has been using long-term supplycontracts to give itself cushion against rising prices. Thecontracts can shield it from higher costs for at most twoquarters, Campbell said.

"We are seeing some material cost increases," she said. "Thenews last week (has) put some more pressure on material cost."(Reporting by Rajesh Kumar Singh; Editing by Peter Szekely)