Ad valorem tariffs are taxes imposed upon a sale based upon the value of the item. Since the United States is imposing the ad valorem taxes on Thailand. The company is forced to find alternate methods for circumventing the taxes.
The smart move for the company would be to shift the production operations to another one of the initial locations that also offers low labor costs, whether that be in Malaysia or Hong Kong, and continue production and assembly as usual.
Given the nature of the ad valorem tariffs, another alternate way to evade the taxes would be to manufacture the computer components in Thailand and export the unfinished computer goods to another nation to complete the physical assembly of the computers for sale to avoid the higher taxed amount when compared to the ...view middle of the document...
S could be absorbed into the price of the product and still remain competitive within the U.S. market.
One other possibility with a decently low chance of success could also be for the company to lobby the United States government as well as Thailand’s government in an effort to have the trade barrier reduced to a much more affordable rate that would work for all parties involved.
The reason trade barriers exist is so that countries can limit where companies can operate/expand and conduct business from. The main purpose is so that it makes imported goods less competitive than native goods, hence keeping jobs and purchasing domestic. The problem is that there is an exorbitant amount of loopholes that exist in the status quo for these tariffs which enable companies to bypass the intent of the tariffs.
I believe that the one takeaway from the use of this targeted trade barriers is that the barriers tend to hurt businesses the most or end up being unsuccessful. The cost to relocate to another country would most likely be extremely costly, and if the business decided to export to an intermediary nation before the computers reach the United States, then the barrier becomes ineffective.
Trade barriers in theory, encourage less competition from goods that are not produced in the United States. As shown above, there exists many ways provided by the global market to circumvent and render trade barriers more or less ineffective. In addition, trade barriers impose an artificial hand on the market, not allowing the free market to work to the fullest extent. Free trade allows for the lowest priced goods and the highest quality goods to capture a large market share for consumers. Barriers to the free flow of goods if successful, detracts from firm innovation, by creating a one sided market economy in which there is little competition.