Suppose that one of the countries discussed in question (1) imposed a tariff, or a tax on
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Suppose that one of the countries discussed in question (1) imposed a tariff, or a tax on imports, which your firm must then add to the cost of exporting to that country. The tariff does not apply; however, to any units you produce in that country to sell to its consumers directly. Suppose that you initially were exporting to that market, but the tariff is set high enough that you decide to switch to an FDI strategy. (This is often called tariff-jumping FDI.) What price will you now charge consumers in that country for your product? Is this tariff-induced change likely to be beneficial to that country? Should every importing country try this, or could it backfire?
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In a market which is initially served through exports where a tariff makes the foreign firm choose ...View the full answer
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