In explaining how he plans to revitalize U.S. manufacturing with tariff hikes, former President Donald Trump likes to talk about Harley-Davidson in India. As he tells it, the iconic American company was forced to build bikes in India to get around its crushing import duty.

It’s a classic tale of “tariff skipping” foreign direct investment, and Trump believes the U.S. should learn from it. Yet Trump takes the wrong lesson from the story.

Harley struggled under the weight of trade policy uncertainty in India. It wasn’t simply that the country’s most-favored-nation tariff was 100 percent, but that it was unbound, meaning there’s no World Trade Organization limit on how high this one import duty could go.

This uncertainty affected how Harley did business in India, including the type of manufacturing it did there. The tariffs isolated the company from its supply chains, given the cost of importing inputs. This kept Harley from investing in innovation and led it to simply assemble “completely built units” and “semi-knocked down” units. This was not the high value-added work India wanted.

By 2021, Harley was largely done manufacturing in India, aside from a small joint venture.

Nothing about this story should lead the U.S. to follow India’s strategy for tariff-skipping foreign direct investment.

Worse, Trump’s proposal........

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