Full throttle

Full throttle

• U.S. markets: Stocks got smoked because, well...what else? Fears of an escalating trade war.
• Housing market: New home sales in the U.S. reached a 6-month high in May.

TRADE

Harley-Davidson: A Case Study on the Trade War

Slide into your black leather jackets and color in your "I heart mom" tattoos—American motorcycle company Harley-Davidson (-5.97%) is going for a ride.

In an SEC filing yesterday, the company said it would shift some U.S. production overseas to avoid a 31% EU import tariff—a retaliatory tax announced by the EU on Friday.

According to the company, the tariffs...

• Will deliver a $45 million hit in 2018.
• Could cost up to $100 million per year, if the company doesn't outsource production.

But now, it will

And...let's be clear here...this is a huge deal. Harley-Davidson's about as American as apple pie and Ryan Seacrest.

Which is why for decades it's been used as a symbol of U.S. manufacturing success. Seriously.

A case study from the Clinton administration used Harley-Davidson to prove that "Effective U.S. trade policy can reap rewards for American companies and American workers."

• In 1983: Japan hit U.S. markets with high-quality motorcycles, crippling Harley's market share and lowering prices.
• The government stepped in: Reagan imposed a 45% tariff on Japanese heavyweight motorcycles.
• The result? Harley's comeback was so emphatic it prompted the administration to end the tariffs earlier than expected.

And four decades later, the administration was still using Harley as a case study.

In February 2017, the Trump administration praised the company as an American success story—an example of a company committed to U.S. manufacturing.

But this time, trade policy is having the opposite effect on Harley...

• It would have to raise the price of each motorcycle it ships to the EU by $2,200 if production doesn't leave the U.S.
• That's a dealbreaker, considering Europe is Harley's second-biggest market (driving 15% of its revenue).

Bottom line: If you're looking for the answer to "What actually happens in a trade war?"...this is it.

M&A

Here’s the Deal with Three Major Deals

1. PE firm Advent is buying GE's (-2.30%) distributed power unit for $3.25 billion.

• What it means: GE is staying true to its paleo diet of offloading $20 billion in assets.
• This unit won't win any beauty pageants: It makes massive gas engines which power industrial plants in rural areas.

2. Gray Television (+16.02%) will acquire Raycom Media in a $3.65 billion deal.

• What it means: TV companies are consolidating so fast we can't keep up.
• Xs and Os: The combined company will own 142 stations in 92 markets, reaching 24% of U.S. TV households.

3. AT&T (+0.06%) will buy digital ad company AppNexus for ~$1.6 billion, per the WSJ.

• What it means: AT&T wants to monetize its newly bought Time Warner content and compete with the Facebook and Google duopoly.
• Bottom line, from AT&T's Brian Lesser: "Ad tech unites real-time analytics and technology with our premium TV and video content...So, we went out and found the strongest player in the space."

TRANSPORTATION

Uber’s London Showdown

If you're headed to London this week, you've got to check out these two spots:

1. A local pub to celebrate a Harry Kane goal in the World Cup.
2. The Westminster Magistrates Court to watch Uber fight for its life in London.

Remember: The city's transportation authority revoked Uber's license to operate in September after finding it wasn't "fit and proper" (think: conducting haphazard background checks).

So what's Uber's strategy to win back its largest European market? Argue that it's grown up as a business and learned its lessons.

• If that sounds like a familiar theme, it's because CEO Dara Khosrowshahi's spent the entirety of his 10 months as boss cleaning up the various scandals left by founder and ex-CEO Travis Kalanick.

What you should expect: Per the NYT, "A deal of some sort is likely to be reached to keep the company's cars on the roads."

REGULATION

You’ll Never Guess What China Did When John Oliver Criticized It for Blocking Websites

...it blocked HBO's website (Oliver hosts Last Week Tonight on the network).

According to the web censorship watchdog GreatFire.org, www.hbo.com has been "100% blocked in China" since Saturday.

What hit a nerve? Among other criticisms, Oliver went after the government for reportedly censoring Winnie the Pooh posts on social media.

Remember: In China, you cannot access Facebook, Google, YouTube, Twitter, Instagram, and thousands of other websites without using a vpn, or Virtual Private Network.

SOCIAL MEDIA

Valuations That Make You Go "Wow"

Per Bloomberg Intelligence: Analysts estimate Instagram would be worth over $100 billion as a stand-alone company...

WOW: If that's true, then Facebook's $1 billion purchase of Instagram in 2012 may have been the biggest steal ever.

DOUBLE WOW: Snapchat, one of Instagram's main competitors, has a public market cap of just $16 billion.

TRIPLE WOW: Instagram could contribute up to 16% of Facebook's revenue by next year. Facebook raked in a cool $40 billion in 2017.

+ Just last week, Instagram announced it passed 1 billion monthly active users and released IGTV, a YouTube competitor.

PHARMA

Another Historic Day for Cannabis

The FDA approved the first-ever treatment derived from a marijuana plant in the U.S. The drug, called Epidiolex, could be available in the U.S. market in just a few months.

What does it treat? Two rare forms of epilepsy in children.

And no, the FDA didn't just give preschoolers the green light to toke up. The drug is a purified form of cannabidiol (CBD), a chemical component of cannabis that doesn't "cause intoxication or euphoria that comes from THC," per the FDA.

WHAT ELSE IS BREWING

• Apple (-1.49%) is releasing over-the-ear, noise-canceling AirPods in 2019, per Bloomberg.
• The Supreme Court ruled in favor of American Express in a dispute over merchant fees.
• Venmo partnered with MasterCard to launch a physical debit card.
• A French executive at Toyota earned almost triple what the carmaker's CEO made.

BREAKROOM

KICKING AROUND KICKSTARTER
The GoCube—Can't wrap your head around learning a Rubik's Cube? No worries, GoCube is an interactive learning platform for the world's most timeless puzzle. To better understand how it works, you've gotta check it out for yourself.

TRIVIA
Can you name the top 10 world economies by GDP? Partial credit for naming 6.

(Answer located at bottom of newsletter)

Breakroom Answers