Responding To Trump’s Trade War, Harley-Davidson To Move Manufacturing Overseas

Once touted as an example of his deal-making prowess, Harley-Davidson sent a rebuke to President Trump by announcing it was moving some manufacturing to Europe to counteract the impact of his ongoing trade war.

Once lauded by President Trump as an example of the success of his deal-making skills and economic policy, Harley-Davidson has announced that they will be moving some production outside the United States in response to the trade war that President Trump has started:

Harley-Davidson, the American motorcycle manufacturer, said on Monday that it would shift some production of its iconic bikes overseas to avoid retaliatory tariffs imposed by the European Union in response to President Trump’s trade moves.

The decision, announced in a public filing, is the latest and most high-profile example of how Mr. Trump’s trade war is beginning to ripple through the United States economy as domestic companies begin struggling with a cascade of tariffs both here and abroad. While Mr. Trump says his trade policy is aimed at reviving domestic manufacturing, Harley-Davidson’s decision shows how the administration’s moves could have the unintended effect of reducing employment and economic growth in the United States.

Last week, the European Union hit back against Mr. Trump’s steel and aluminum tariffs with penalties on $3.2 billion worth of American products, including bourbon, orange juice, playing cards and Harley-Davidsons. On Monday, the Wisconsin-based company said that European tariffs on its motorcycles had increased to 31 percent from 6 percent and estimated that would add about $2,200, on average, to every motorcycle exported from the United States to the bloc.

Rather than pass that cost along, the company said it would shift production to its overseas facilities to avoid the European Union tariffs.

“Harley-Davidson believes the tremendous cost increase, if passed on to its dealers and retail customers, would have an immediate and lasting detrimental impact to its business in the region, reducing customer access to Harley-Davidson products and negatively impacting the sustainability of its dealers’ businesses,” the company said in the filing.

Harley’s decision carries huge significance given Mr. Trump’s frequent championing of the Wisconsin company as an American icon and a successful American manufacturer that is creating jobs in the United States. Mr. Trump hosted Harley-Davidson executives at the White House in February 2017, where he called the firm a “true American icon” and thanked it “for building things in America.”

As Peter Eavis notes in The New York Times, this decision stands as a good example for other American corporations that rely on foreign markets for a substantial part of their sales:

Corporate America has largely avoided sticking its head over the parapet in the trade war. That’s going to become harder as the bellicose rhetoric transforms into action.

Case in point Harley-Davidson: The company on Monday announced it was planning to shift some production out of the United States to lessen the cost of tariffs that the European Union imposed in response to those put in place by the Trump administration.

Harley-Davidson’s move reveals the uncomfortable choices companies face as they navigate escalating trade tensions. The company, by making more motorcycles beyond its United States factories, could draw criticism from President Trump and his supporters. But if Harley-Davidson does not adapt to the rising trade barriers, it stands to sell fewer motorcycles, which could harm its profits.

So far, large companies have mostly left it to their trade groups to speak out against Mr. Trump’s trade policies. But when financial pain threatens to become consequential, public companies are obliged to publicly quantify it. Almost by default, then, they are forced to enter the fight. And as more companies do what Harley-Davidson did, the debate over trade wars will focus on the nitty-gritty.

(…)

[N]egative corporate announcements bring a jarring specificity to trade wars that can spread through financial markets and the wider economy. Harley-Davidson’s stock was down over 7 percent on Monday. The Standard & Poor’s 500-stock index was down 1.8 percent. The benchmark is now only up 1.1 percent since the end of 2017 and down 5.9 percent from its all-time high. The trade war appears to have halted the Trump rally. And there are a lot more Harley-Davidsons on the stock market.

The editors at The Wall Street Journal put it this way:

Donald Trump’s trade war has been an abstraction for most Americans so far, but the retaliation has now begun in earnest and the casualties are starting to mount. The President’s beloved stock market took another header Monday on news of more restrictions on investment into the U.S., and the Dow Jones Industrial Average is now down for 2018. But the biggest losers Monday were the American workers who make Harley-Davidson motorcycles whose jobs will soon be headed overseas thanks to the Trump tariffs.

Last year Mr. Trump commended Harley-Davidson for “building things in America,” calling the company “a true American icon, one of the greats.” And he proclaimed last week at a rally in Duluth, Minnesota, “We’re bringing back our jobs from other countries.” Awkward timing, Mr. President. On Monday the motorcycle company announced it will shift more production out of the United States.

(…)

The only response White House press secretary Sarah Sanders could muster on Monday to the Harley news is that “the European Union is trying to punish U.S. workers by engaging in unfair trade practices.” But the Harley harm is made in America—that is, the White House.

Mr. Trump threw the first punch with his steel and aluminum tariffs, which have already driven up the cost of Harley’s raw materials by $15 million to $20 million this year, CFO John Olin said in an April earnings call. Mr. Trump also killed the Trans-Pacific Partnership, which would have cut tariffs on American-made motorcycles. U.S. withdrawal forced Harley to pursue its “Plan B” and build a plant in Thailand to avoid Asian tariffs.

(…)

The list of job casualties will continue to grow. A June report by the economic consulting firm Trade Partnerships Worldwide estimates a net loss of 400,445 jobs over the next three years because of the steel and aluminum tariffs, quotas and retaliation. That’s 16 jobs lost for each steel or aluminum job gained.

The damage is likely to have political consequences, as the retaliatory tariffs target industries in swing states. Wisconsin produces more than 90% of America’s ginseng, and 95% of that comes from Marathon County. The county went for Mr. Trump in 2016, but it’s now wrestling with the consequences of China’s new 15% retaliatory tariff. Mr. Trump is also going to have some explaining to do to Wisconsin cranberry farmers, Florida orange-juice producers, and Iowa soy and corn growers.

Good luck to Republicans running on the Trump tariffs in November.

Predictably, Donald Trump lashed out at the company on Twitter yesterday and again this morning:

The response to the President’s second tweet, of course, is that Harley-Davidson specifically stated in the filing yesterday that it was planning the move to Europe specifically in response to the President’s tariffs and the response that inevitably came from the European Union. By contrast, the announcement of the move to Thailand was largely due to a desire to move some production to Asia to more efficiently respond to markets over there where demand for its products are increasing. Obviously, building motorcycles in Asia will make it easier to cater to markets in China, Japan, Vietnam, and other countries where demand for Harley products are increasing because it helps to cut down on shipping costs, as well as delays in meeting demand caused by having to ship motorcycles from the United States to Asia. That’s not the case here. In this case, it’s clear that the move to Europe is being made precisely because of the trade war the President started, and the fact that the President has chosen to tweet about it six times since yesterday afternoon is seeming proof that he realizes that this is bad public relations for him.

Harley-Davidson’s announcement came in the wake of an announcement last week from the European Union that it was raising the tariffs it imposes on imports from the American manufacturer from its current level of 6 percent to 31 percent, an increase of more than 400 percent that would raise the price of a Harley made in the United States and exported to Europe by at least $2,200. Initially, Harley-Davidson responded to these retaliatory tariffs by stated that it would decline to raises prices to cover the tariff increase and would instead absorb the cost itself. Given the fact that estimates suggest that this could end up costing the company as much as $100 million per year, though, it seemed inevitable that a decision like this would be made in the interest of the long-term health of the company and the interests of the company’s shareholders.

This all started back in March when the President announced a series of tariffs on foreign-made steel and aluminum in the name of “national security. Initially, waivers from those tariffs were given to America’s allies in Europe as well as Mexico and Canada. In late May, though, the President announced that those waivers were being revoked, again in the name of “national security” and that steel and aluminum from Europe, Mexico, and Canada. Needless to say, this didn’t go over very well with our allies in Europe and elsewhere. Canada’s Foreign Minister called the new tariffs “absurd,” for example, and European Union officials announced retaliatory tariffs against American goods. Things got even more bizarre in this regard as Trump exchanged harsh words with Canadian Prime Minister Justin Trudeau prior to the G-7 Summit. Once he was at the summit, Trump essentially did everything he could to alienate America’s closest allies, thereby seemingly achieving a goal that Russia and, before it, the Soviet Union had only dreamed of, driving a wedge between the United States and its allies. Finally, it was reported at the same time that the President was considering what would effectively be a ban on German-built luxury automobiles. The new tariffs announced last week by the European Union, which prompted this response from Harley-Davidson, were the latest round in this ongoing war that, in the end, will have no winners.

The decision that Harley-Davidson announced yesterday, which admittedly could be culled back if this current idiotic trade war comes to an end and the previously announced tariffs are revoked, is something that should have been predictable from the moment the President decided to start this war. While the company can probably afford to absorb the costs that the additional tariffs that are being imposed by the E.U. in the short-term, that certainly won’t be true if this lasts for an extended period of time or if it expands beyond the level that it has reached already. Eventually, the costs of essentially paying out of pocket to cover the additional $2,200 per motorcycle the tariffs are expected to cost are going to start biting into the company’s bottom line, which will displease shareholders and impact the company’s overall ability to compete here in the United States and worldwide. That’s why it makes sense for the company to move at least some of its manufacturing overseas in order to avoid the tariffs, and we’ll see more of it from other companies if this continues. Once again, it’s worth remembering that President Trump once said that trade wars are good and easy to win. It’s only been three months since he started this war and we’re already finding out just how wrong he is about that.

FILED UNDER: Donald Trump, Economics and Business, International Trade, Politicians, US Politics,
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010. Before joining OTB, he wrote at Below The BeltwayThe Liberty Papers, and United Liberty Follow Doug on Twitter | Facebook

Comments

  1. Michael Reynolds says:

    A lot of companies make motorcycles and Harley can’t afford to lose market share – which will be damned hard to claw back – and abandon Europe to the Japanese just because the president’s a moron.

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  2. grumpy realist says:

    I read somewhere that the Thailand decision was made because the U.S. had pulled out of the Pacific Trade Treaty.

    Are we going to have to go through the entire mess of a) trade barriers b) stock market crash c) Another Great Depression d) war with someone to drag U.S. manufacturing up–before we realise that this is bloody stupid?

    Oh well–I’m sure the Chinese are grinning ear to ear watching our antics.

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  3. Timothy Watson says:

    Obviously, building motorcycles in Asia will make it easier to cater to markets in China, Japan, Vietnam, and other countries where demand for Harley products are increasing because it helps to cut down on shipping costs, as well as delays in meeting demand caused by having to ship motorcycles from the United States to Asia.

    As the news article you quoted noted, and as the Harley Davidson CEO has publicly stated previously, the factory in Thailand was built solely due to Trump’s withdrawal from the Trans-Pacific Partnership which would have reduced traffics on motorcycles exported from the United States to the countries in the TPP.

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  4. MarkedMan says:

    There is a lesson here. Harley has a lot of Trump supporters and thought it could leverage that somehow by playing nice with him. But people never learn. When your are dealing with a toxic individual like Trump the only hope is take your lumps early and get him the hell out. There are many Republican officials who actually need to kiss up to Trump in order to save their seat, but by and large these are the ones that are the types of racist scumbags that agree with him anyway. The others are holding their noses and shutting their eyes, not realizing they are marching into a swimming pool full of sh*t.

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  5. Daryl and his brother Darryl says:

    I ride motorcycles. A lot. I can tell you that Harley riders are overwhelmingly Dennison supporters.
    Harley Davidson made the calculation that this move was more important than losing $100M a year.
    Therefore $$$>Dennison.
    What happens when all the Dennison supporters realize their insurance is gooing up because of Dennison, and their gas is going up because of Dennison, and their food is more expensive because of Dennison, and everything made of steel or aluminum is more expensive because of Dennison?

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  6. Mikey says:

    Trump’s blather about “waving the white flag” shows he thinks of H-D not as a corporation with employees that needs to turn a profit to stay in business, but as a pawn in his idiotic trade war.

    Given that he thinks of every other human being on Earth solely in terms of how they are useful to him, this isn’t surprising.

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  7. Scott F. says:

    @Daryl and his brother Darryl:

    What happens when…”

    Sadly, as long as Trump keeps smacking at liberals and being cruel to immigrants, nothing happens.

    Therefore Hatred of the Other > $$$

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  8. Daryl and his brother Darryl says:

    I’m old enough to remember Solyndra and when Republicans thought the Government picking winners and losers was a bad thing.
    Dennison has threatened the Red Hen, Harley, and may others.

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  9. Kathy says:

    Let’s try a basic lesson for the trumpidians:

    If a measure of imported steel is worth, on average, $100, and one of domestic steel is worth $105, then most companies who use steel may elect to buy it imported.

    Next if the Cheetto imposes a 25% tariff on imported steel, then the price climbs to $125, so the domestic steel is now cheaper, right?

    Wrong.

    For starters, it is still worth $5 more than what customers used to pay. But in the first place, the domestic producers no longer need to try to match the $100 price, but the $125 one. So they can raise their prices to, say $115 to $120.

    This drives up the price of things made with steel, like motorcycle engines.

    Next, if the EU imposes a retaliatory tariff on motorcycles, well, that drives up the price in Europe even more.

    So a company, say Harley Davidson, that moves its operations to Europe can 1) get cheaper steel in the international market, and 2) avoid the retaliatory tariff.

    So.Much.Winning.

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  10. Nick Nelson says:

    Sadly this all makes a kind of weird sense if you look at what Trump believes.

    He seems to think that if America runs a trade deficit the country is “losing” the amount of the deficit.

    This is clearly nonsense but does explain his actions. You ask an ignorant moron how to solve a problem, not that running a trade deficit is an actual problem, and you’re likely to get an ignorant and moronic solution.

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  11. Franklin says:

    @Daryl and his brother Darryl:

    What happens when all the Dennison supporters realize their insurance is gooing up because of Dennison, and their gas is going up because of Dennison, and their food is more expensive because of Dennison, and everything made of steel or aluminum is more expensive because of Dennison?

    But they got like $50 in tax breaks for the next decade, maybe that will make up for (a tiny fraction) of it?!?!

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  12. Kathy says:

    @Nick Nelson:

    Sadly this all makes a kind of weird sense if you look at what Trump believes.

    perhaps more than you think.

    Many years ago on a summer vacation in Acapulco, two of my cousins were playing “Cowboys at the Super Bowl” in a large backyard by a pool. One would toss the ball to the other and run down field. Then the one with the ball would throw a pass. They narrated their game as if they were on TV, saying things like “Staubach to Dorsett, caught for a touchdown!”

    Every complete pass was a touchdown, of course, and they only pretended to be dodging imaginary defenders when they remembered to. By my count, they were up like 677 to nothing by the time they tired of playing and dove into the pool.

    These were children playing. But I think this is how Trump imagines a “strategy” when he puts it into effect. As though the opponents were imaginary, or gutless, or ineffective. As if his every play is always a touchdown, and it can’t be anything else.

    You can imagine then his chagrin and fury when the imaginary, gutless and ineffective opponents materialize and prove to be smart and effective.

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  13. teve tory says:

    Last Wednesday HOG was trading at $45.82. Today it’s currently at $41.28.

    #WINNING! #MAGA

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  14. Robert C says:

    @Daryl and his brother Darryl:
    They’ll blame Obama.

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  15. MarkedMan says:

    Schadenfreude is fine as far as it goes, but any scenario that ends “… and then it will get so bad they will realize we were right all along” is made-for-TV level fantasy. You can try it out on the large level: “Poor whites in the South will eventually see how much worse off they are then their brethren in the North and refuse to uphold the system of slavery.” The medium level: “Blue collar workers in right-to-work states will eventually see how low their wages are compared to their unionized brethren and throw the politicians who voted for it out of office.” And the personal “Aunt Mary and Uncle Tom will eventually see the ridiculousness of their fight and how much pain and anguish it has caused in the family and this will make them apologize to each other as brother and sister should.”

    Actually, that third one does sometimes happen. How is it different from the first two? Well, maybe in that there is no power structure that responds to escalating discontent by manufacturing outrage towards blacks/Irish/Mexicans/Catholics and thereby gets them fighting each other.

    And what does Trump do better than anyone? Set people against each other.

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  16. gVOR08 says:

    @Daryl and his brother Darryl:

    What happens when all the Dennison supporters realize their insurance is gooing up because of Dennison, and their gas is going up because of Dennison, and their food is more expensive because of Dennison, and everything made of steel or aluminum is more expensive because of Dennison?

    As others have commented, purely hypothetical. They’ll never connect it to Trumpsky. They could be standing in the rubble of bombed out Berlin and they wouldn’t blame their leader. (WW, that’s not a dog whistle either.)

    But you’re right that Harley buyers are Trumpskyites. What, 80%? 90? Now Trump will continue his twitter war on Harley, their customers will bitch to Harley, and Harley management will have to come up with some fudge for pretending to fold to Trumpsky and still move production overseas. May be entertaining to watch, but it’s banana republic stuff.

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  17. Daryl and his brother Darryl says:

    Dennison just said that tarriffs could replace the income tax.
    He know less about economics than anyone else in the entire country…and yet the Republican party stands by while he makes policy on a whim.

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  18. Just nutha ignint cracker says:

    @gVOR08: “standing in the rubble of bombed out Berlin Saigon…”

    Now, it’s not a dog whistle.

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  19. teve tory says:

    Trump the innumerate semi-literate dumbass conman now says we can replace the income tax with tariffs.

    Okay, let’s take a quick look at the numbers. The US gummint raises about ~$1.7 trillion in individual income tax every year.

    The US imports about $2.25 trillion worth of goods.

    To replace the income tax, we’s have to put a ~76% tariff on every imported item, and hope this didn’t diminish the amount of imports americans bought whatsoever.

    We already have an ~$800 billion trade deficit. Do you have any idea what that would become if we jacked the price of every imported good by 75%???? Those basic Nikes you pay $85 for? They’re now $150. $150 Air Jordans are now $270. That $35,000 entry level BMW? It’s now $61,000. Your new $1500 MacBook Pro is now $2700….

    Please proceed, Mr. President.

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  20. An Interested Party says:

    Please proceed, Mr. President.

    This is the worst part of the Orange Toddler…in so many ways, he’s a complete idiot, and his groupies will certainly never admit to that and too many in his party are too scared to admit it and do anything about it…

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  21. Kathy says:

    @MarkedMan:

    Schadenfreude is fine as far as it goes, but any scenario that ends “… and then it will get so bad they will realize we were right all along” is made-for-TV level fantasy.

    The hardcore Trumpidians won’t ever change their minds on their Dear Cheeto, agreed. But that’s not the point.

    Consider the economy is good, it has kept growing. There are no new wars. There have been no large terrorist attacks in the West or in the US (and bizarrely this means the Vegas and Parkland shootings are not seen as terrorist acts; not something I agree with). And the Cheeto’s popularity is the lowest in a generation.

    He should be well above 50% approval. He would be if he were a more rational politician. instead he’s the worst kind of incompetent politico. He doesn’t even try to justify his policies, so long as his base nods and smiles.

    To be sure, many Republicans outside his base are either untroubled by his bad acts, or supportive of them to a degree, and they enjoy the nice economy.

    If the economy falters, Trump’s popularity will sink faster than the Titanic, and about as low. his base may stick with him. But the rest who now approve of him, will think “Hey, this outraging the Liberals and demonizing the foreigners ins’t getting me a job! What gives?”

    They may not vote Democrat then, but they won’t vote for the Cheeto, either.

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  22. Hal_10000 says:

    There was a great quote on Twitter the other night (for any B5 fans). “Only an idiot fights a trade war on two fronts. Only the heir to the throne of the kingdom of idiots fights a trade war on twelve fronts.” If Trump were focusing exclusively on China or something, it might pass. But by spitting his bile at literally every foreigner on the planet — including Canada! — he is isolating us politically, militarily and economically.

    To paraphrase him, China is laughing its ass off. Our days as the world’s most powerful nation are coming to and end. And possibly the Pax Americana with it.

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  23. MarkedMan says:

    @teve tory: You may be thinking this is fantasy. But I remember the first time I walked into a mall in Singapore there was a display there for a beautiful new Subaru Forester. $120K in US dollars. The fee for the license plate? $65K in USD. No income tax though. Of course the mandatory 40% contribution for health and old age insurance and pension is not technically a tax. Or drink specials in low rent bars that work out to be $12 USD for a cheap local beer. After happy hour it goes back up to $16 plus. But that doesn’t stop libertarians from talking about is as proof that a society doesn’t need income tax to be vibrant.

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  24. Kathy says:

    @Hal_10000:

    “Only an idiot fights a trade war on two fronts. Only the heir to the throne of the kingdom of idiots fights a trade war on twelve fronts.”

    Sounds like Londo. He also once said “Ah, arrogance and stupidity all in one package! How efficient of you!”

    If trump were serious about the intellectual property theft by China, he’d be getting other countries together to pressure China on the issue.

    I suspect his advisers might have told him this, but he rejected it because 1) he’d have to share credit, 2) it wouldn’t involve tariffs, 3) he had no clue what they were telling him, 4) he has to go it alone because only he can fix it, 5) the trade deficit would persist and that’s “bad” for some reason.

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  25. grumpy realist says:

    @Kathy: I’m in IP and probably am more laid back about the whole China IP swiping than anyone here. Mainly because I figure we’re just seeing a repeat of what has happened historically. The US grabbed a heck of a lot of technology from Britain back in the Victorian period when they were ramping up and couldn’t be bothered about patent infringement; Japan did the same thing to the US; now we’re seeing China doing it to everyone else.

    Usually when the local economy has developed enough to have its own IP is when the government starts enforcing its own laws. We’re gradually starting to see more emphasis on trademark protection as well (the company I work with does a LOT of Chinese trademark infringement cases) and gradually China is developing a sophisticated intellectual property arena. It will take time, and the US will have to put up with technology getting swiped for a while, but I expect it will die down (especially if the rest of the world keeps nagging China about it.) Don’t forget that if technology X is protected under patent in the US and other countries, China can be a bad boy as much as it wants within its own country, but it can get shoved back very hard as soon as it tries to make products involving technology X for export.

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  26. Andre Kenji de Sousa says:

    https://www.ft.com/content/29f24644-78f1-11e8-bc55-50daf11b720d

    Harley-Davidson workers back Trump despite jobs shift
    Most blame only the EU as motorcycle maker moves some production away from US

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  27. mike shupp says:

    @grumpy realist:
    Are we going to have to go through the entire mess of a) trade barriers b) stock market crash c) Another Great Depression d) war with someone to drag U.S. manufacturing up–before we realise that this is bloody stupid?

    No, of course not. We will go through this entire mess and at the end of it, liberals will claim they knew all along this was bloody stupid. And Republicans will proclaim it all a glorious victory, making America great again! So both sides will be able to enjoy the victory.

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  28. Matt says:

    @Hal_10000: Londo had some of the best lines in that series. I just can’t imagine anyone other than Peter playing Londo. He just outright owned that character. A character that could of easily been outright ridiculous in all the wrong ways.

    @Kathy: Yeah it’s from season 3 when Londo summons Lord Refa to B5 to have a chat. By having a chat I mean dosing Refa with the first half of a potion while telling him to stop working with the shadows under threat of the second half of the poison being introduced.

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