FINDING THE BALANCE: TARIFFS AND THEIR EFFECT ON FOREIGN DIRECT INVESTMENTS

Abstract

In the global economic landscape, foreign direct investments (FDI) play a pivotal role in shaping market entries and financial advantages. These investments often hinge on factors such as favorable taxation, affordable labor, and production costs, which can attract global players (Beck and Chaves, 2011). Nevertheless, the interplay of foreign investments with governments extends to the realm of import duties, commonly referred to as tariffs. Tariffs represent a significant juncture where the interests of foreign investors and governments converge. They are a source of revenue for governments through taxation while simultaneously posing costs on companies. Striking a balance with tariff rates is crucial, creating an optimal "sweet spot" that effectively contributes to government revenues and economic planning without discouraging foreign entities from expanding their businesses across borders (Doupnik and Perera, 2015). However, tariffs can be a double-edged sword. Excessively high tariff rates can hinder economic growth, while too low rates can attract foreign businesses, stimulating economic expansion. Achieving equilibrium is paramount for governments, as they aim to protect domestic industries without compromising accessibility to affordable goods and overall economic development (Chatzky, 2019). The history and contemporary scenarios underscore these dynamics, emphasizing the far-reaching implications of tariffs on foreign direct investments and the broader economy.