Considerthe pharmaceutical sector, wherefirmswith heterogeneousproductivity, subject to increasing returns to scale, produce adifferentiatedgood and sell it in a monopolistically competitive market. Export entails both afixedand a variable cost(f_xandrespectively), while serving the foreign market through a subsidiary (horizontal FDI) only entails afixedcost,f_l >f_x. Suppose bilateral tariffs ()between the US and theUKareincreased. Then: