Which of the following is the most attractive way for a firm to reduce or eliminate the impact of paying tariffs on imported goods?

• A. Increase the price of the imported goods to pass the tariff cost to consumers
• B. Lobby the government to increase tariffs on competing domestic goods
• C. Reduce the quantity of imports to minimize tariff payments
• D. Shift production to a country not subject to the tariff

Answer: (D)

Verified step by step guidance

1. Understand the nature of tariffs: tariffs are taxes imposed on imported goods, which increase the cost of those goods for the importing firm.
2. Analyze the options given: increasing the price passes the cost to consumers but may reduce demand; lobbying to increase tariffs on domestic goods is unlikely and counterproductive; reducing imports limits quantity but may hurt supply.
3. Consider the strategic option of shifting production to a country not subject to the tariff, which allows the firm to avoid paying the tariff altogether by changing the source of production.
4. Recognize that shifting production is often the most effective way to eliminate tariff costs because it changes the supply chain to bypass the tariff-imposing country.
5. Conclude that among the options, relocating production to a tariff-free country minimizes or eliminates tariff impact without necessarily reducing supply or increasing prices.