What happened

Shares of motorcycle icon Harley-Davidson Inc. (NYSE:HOG) plunged as much as 7.1% in trading Monday after the company reacted to the U.S tariffs and the European Union's retaliation. Not surprisingly, when a trade war erupts, the news isn't good for investors, and shares were down 6.6% as of 3:35 p.m. EDT. 

So what

Management disclosed in an SEC filing that tariffs on Harley-Davidson's exports to the EU would increase from 6% to 31%. The added cost amounts to about $2,200 per motorcycle, which management feels would hurt sales in the EU. 

Two people riding motorcycles on the highway.

Image source: Getty Images.

Instead of passing higher costs on to dealers and consumers, the company is going to move some manufacturing to Europe and expects to take a $90 million to $100 million hit to its financials on a full-year basis. 

Now what

Full-year net income in 2017 was $571.8 million, so a $100 million drop in earnings would be a huge impact. The decision to increase manufacturing in the EU is also a sign that management doesn't see any end to the trade war escalating today. Harley sees more benefit in moving manufacturing out of Wisconsin and closer to points of demand, which is no surprise as tariffs start hurting its ability to export its products overseas.  

Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.