Final answer:
Britain taxed British companies' foreign earnings at a higher rate to discourage FDI and protect domestic industries, not to encourage it. High taxation on foreign income aimed to make domestic investments more attractive, supporting the local economy.
Step-by-step explanation:
The reason Britain taxed British companies' foreign earnings at a higher rate than their domestic earnings was not to encourage Foreign Direct Investment (FDI) but rather to discourage it and prevent capital outflow. This taxation policy is usually designed to raise revenue and protect domestic industries. High taxation on foreign income makes domestic investment more appealing, which helps protect the local economy and jobs. However, this can also lead to inefficiencies if domestic companies remain unchallenged by international competition.
FDI itself refers to an investment in one country by a company based in another, often by purchasing a significant stake in a foreign company or establishing new business operations abroad. Tariffs, on the other hand, are taxes on imported goods used to raise revenue and protect domestic industries from foreign competition, which can support domestic economic development.