Donald Trump often highlights Harley-Davidson’s India situation while discussing his tariff strategy to boost U.S. manufacturing. According to him, the American company had to manufacture motorcycles in India to dodge hefty import duties.

This scenario is a classic example of foreign direct investment that avoids tariffs, something Trump believes the U.S. can learn from. Despite this, Trump fails to grasp the real lesson from Harley’s experience.

The uncertainty surrounding trade policies in India proved challenging for Harley. It wasn’t just the 100 percent most-favored-nation tariff that was the issue, but also the fact that it was unbound, meaning there was no fixed limit as to how high the import duty could go.

This ambiguous trade environment influenced Harley’s operations in India, affecting the manufacturing processes carried out there. The high import costs of raw materials led the company to be cut off from its supply chains, hindering investment in innovation and resulting in the assembly of “completely built units” and “semi-knocked down” units, which did not align with India’s desired high value-added work.

By 2021, Harley had largely ceased manufacturing in India, except for a small joint venture. The U.S. should not interpret this story as a green light to emulate India’s approach to avoiding tariffs through foreign direct investment.

Trump’s proposed tariffs, such as a 10 or 20 percent across-the-board tariff plus a 60 percent tariff on Chinese imports, would introduce even greater trade policy uncertainty than Harley faced in India. Such measures would unravel most, if not all, of the U.S.’ existing tariff commitments under the WTO and its 14 preferential trade agreements with different countries, setting off a chain of economic uncertainty.

Trump’s arbitrary tariff measures would cause unrest among businesses and consumers due to the lack of a clear legislative basis, and could potentially manipulate tariff structures to cater to specific countries or industries. This volatile approach would exacerbate trade policy uncertainty even further.

Comparatively, Trump’s previous tariffs led to unprecedented levels of trade policy uncertainty that damaged trade and investment. The idea that tariffs could revive U.S. manufacturing without foreign retaliation was debunked, as shown by the aftermath of the 2018-19 tariffs.

While Harley’s time in India was not successful, its flourishing experience in Thailand highlights the success of “export platform” foreign direct investment. By leveraging Thailand’s extensive network of trade deals, Harley has thrived in that market, showcasing the benefits of preferential market access and reducing trade policy ambiguity.

Thailand’s robust trade agreements have boosted Harley’s innovation efforts, enabling the production of motorcycles from scratch in the country, which was not possible in India. Trump overlooks the importance of export platforms in comparison to niche tariff avoidance.

When the EU retaliated against Trump’s steel and aluminum tariffs, Harley faced extra tariffs, prompting a shift in exports from Thailand to the EU due to favorable customs rulings. This scenario underscores the power of export platforms in eliminating the need for tariff evasion practices.

The crucial lesson from Harley’s journey, which Trump fails to recognize and Congress must heed, is the significance of strategic foreign direct investment through export platforms to navigate global trade complexities.