Final answer:
A company would favor FDI over exporting when trade barriers are in place because FDI allows a company to bypass these barriers by establishing a local presence, which can reduce costs and provide other market advantages. However, governments may implement trade barriers to protect domestic interests, despite the broader economic benefits of trade.
Step-by-step explanation:
The statement that a company would favor Foreign Direct Investment (FDI) over exporting when trade barriers are in place is true. Trade barriers such as tariffs, quotas, and regulations increase the cost and complexity of exporting goods to another country. In this situation, FDI becomes a more attractive option because it allows a company to establish production or distribution facilities in the target market, circumventing these barriers. This local presence not only reduces trade costs but may also provide benefits such as closer proximity to customers, better market understanding, and compliance with local standards and regulations.
Trade barriers can protect domestic industries and jobs by preventing foreign competition from easily entering the market. For example, in a situation where agricultural trade barriers are removed, domestic sugar producers in Country C would benefit from the ability to sell their products internationally. However, concerns about overreliance on imported goods and the risk of environmental regulations being bypassed can lead governments to implement trade barriers to safeguard national interests. These factors must be balanced with the broader economic gains from trade liberalization, which often include improved product availability and competitive pricing for consumers, as well as growth opportunities for businesses.