The torsional vibration of Harmonic reducer is concerned with the positioning accuracy and trajectory accuracy of industrial robots. A study on the parametric torsional vibration based on time-varying stiffness will improve the mechanical performance of Harmonic reducer. In this paper, the phenomenon of time-varying stiffness caused by manufacturing error is investigated on a Harmonic driver through mechanism analysis and experimental investigation. Meanwhile, a model of forced parametric vibration is set up for the Harmonic driver transmission system with an inertia load. The parametric vibration response is simulated by the Runge-Kutta method, and the issue of bi-spectra, combined harmonic group, and the envelope of system sweeping frequency response are analyzed in detail. The influence of double periodic time-varying stiffness on vibration is emphasized with simulation data. To observe the characteristic of parametric vibration in Harmonic driver, a test device has been developed for the measurement of torsional vibration. The dynamic characteristics can be confirmed through signal processing on torsional vibration. An engineering example is given to illustrate that the manufacturing defect can be on-line diagnosed in Harmonic driver by using the characteristic of bi-spectra. As a result, the magnitude of torsional vibration is eliminated to one half of the original case through the reassembly process, and one of the mechanical performances, i.e., the property of torsional vibration-speed, is improved obviously. The dynamic characteristics caused by time-varying stiffness, i.e., bi-spectra, can be used as a new clue of manufacturing quality assurance for Harmonic driver.