Impact Of Tariffs And Production Cost On A Multinational Firm’s Incentive For Backshoring Under Competition

This thesis studies the effect of tariffs and production cost on a multinational firm’s incentive for backshoring under competition.The multinational firm can produce in a low-cost foreign country,but its products are imposed tariffs when sold back to home country.To model the two competing firms’ interactions,this study considers three common power structures:the multinational firm as the leader,the competitor as the leader,two firms holding equal power.In the basic model,consumers’ preference for two products is considered to be the same.The analytical results are as follows.First,the multinational company benefits from offshoring when the tariff is low.Second,in the case of offshoring,the multinational firm’s profit can increase as the market competition rises when the competition is intense,and this trend is more likely to exist when the low-cost advantage of offshoring is more significant,or the multinational firm becomes more powerful.Third,offshoring always hurts the competitor but always benefits home customers,and it is beneficial for the multinational firm only when the tariff rate is low.Furthermore,it is more difficult to induce a multinational firm with weak power to backshore by imposing tariffs.Then this thesis extends study to two variants,including customers prefer the multinational firm’s and competitor’s product.The results from the variants confirm that customers’ preference over the multinational company’s product does not affect multinational company’s incentive for backshoring when multinational company is the leader or both firms have equal power,but it diminishes multinational company’s incentive to backshore when the competitor is the leader.In addition,customers’ preference over competitor’s brand always reduces multinational company’s incentive to backshore.