Trump’s getting Harley-Davidson’s story wrong: It’s not about tariff skipping
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 for an across-the-board tariff of 10 or 20 percent, plus 60 percent on Chinese imports, would create far more trade policy uncertainty than what Harley faced in India, with even more dire consequences. His vows on the campaign trail would amount to unwinding most — if not all — U.S. tariff commitments at the WTO and its 14 preferential trade agreements with 20 countries.
Moreover, there’s no clear legislative basis for these across-the-board tariffs, meaning he’d have to create them from whole cloth. This ad hoc approach would rattle businesses and shake consumer confidence. If some tariffs were recalibrated on a non-most-favored nation basis to punish specific countries or protect politically connected firms and industries, it would only add to trade policy uncertainty.
To put this in perspective, consider what happened in the wake of Trump’s 2018-19 tariffs. By one index, U.S. trade policy uncertainty reached its post-1965 zenith after Trump’s Section 301 China tariffs took effect. His tariff threats against Mexico and his Section 232 steel and aluminum tariffs, were a close second and third, respectively.
Yet these tariffs, unlike the ones that Trump vows to implement in a second term, had a legal basis, and couldn’t be applied across the board.
Trump’s tariffs would result in unprecedented levels of U.S. trade policy uncertainty, harming trade and investment. Firm-level growth, output and productivity would all suffer, undermining the myth that tariffs can revitalize U.S. manufacturing even if foreign countries don’t retaliate (which they will).
While Harley’s time in India was a bust, the company is thriving in Thailand. This experience teaches the advantages of “export platform” foreign direct investment. Harley went to Thailand to tap the country’s preferential market access to a long and growing list of markets that it has secured through trade deals.
Thailand has a hefty unbound most-favored nation tariff of 60 percent on bikes. But the country attracts foreign direct investment and has become the world’s fifth-largest manufacturer of motorcycles, because of its wide web of trade deals with Australia, Japan, the European Union, New Zealand, Peru, the Association of Southeast Asian Nations and the Regional Comprehensive Economic Partnership, among others.
Even more deals are in the works.
So long as Harley meets the relevant rules of origin, it enjoys preferential market access to these markets. Thus, Thailand is doing for Harley what Washington should be doing more broadly.
Because Thailand’s trade deals have enforceable provisions on tariffs, regulatory measures and intellectual property rights, for example, they reduce trade policy uncertainty.
This, in turn, has led Harley to invest in innovation in the country, and to produce several bikes from scratch there, not just completely built units or semi-knocked downs. Trump misses this point: tariff skipping is more niche than export platforms.
Trump should know this story. After all, when the EU retaliated over his steel and aluminum tariffs, Brussels hit Harley with an extra 25 percent tariff on top of its 6 percent most-favored-nation rate.
At first, Harley vowed that it wouldn’t pass this extra $2,200 per bike on to consumers, but this wasn’t sustainable. Plan B? Harley exported to the EU from Thailand, which was possible because EU customs ruled on five occasions that these Harleys were Thai and not American. (This was later reversed in 2023.)
This would never have been said about Harleys made in India. Moreover, now that Thailand has a trade deal with India, export platform foreign direct investment is enabling Harley to turn away from tariff skipping.
That’s the lesson of the Harley story that Trump misses and the one Congress can’t afford to ignore.
Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service, Georgetown University.