Final answer:
It is true that creating a subsidiary in a foreign country to produce a product can help avoid tariffs imposed by that country. This strategy allows a company to circumvent both tariffs and non-tariff barriers, like 'rules-of-origin' regulations and can be part of a broader international business approach.
Step-by-step explanation:
True, one method to avoid a tariff is for a company to establish a subsidiary in the foreign country that imposes the tariff. By producing the product in that country, the subsidiary can bypass the tariffs that would have been placed on imported goods. This can be part of a broader strategy to reduce the costs associated with trade barriers, such as high tariffs and complex permit systems which may favor domestic production over imports due to the extra bureaucracy and potential for corruption they introduce.
Countries often employ nontariff barriers as well, including regulations, safety standards, and 'rules-of-origin' to control imports. However, establishing local manufacturing can help circumvent these non-tariff barriers as well by ensuring the last substantial change occurs domestically, thus meeting the rules of origin requirements. Overall, this is a strategic move used by businesses as part of their international trade and manufacturing strategies to optimize costs and access to markets.