Countries enact trade policies based on trade theories, which, in turn, affect companies' optimum production locations.

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Trade theories, such as comparative advantage and factor endowment, are used by countries to determine their trade policies. These policies can impact a company's choice of where to produce its goods, depending on factors such as tariffs, subsidies, and regulations. For example, if a country imposes high tariffs on imported goods, a company may choose to locate its production facilities in that country to avoid the tariffs. Similarly, if a country has abundant resources of a particular kind, such as skilled labor or natural resources, companies may choose to locate production facilities there to take advantage of those resources.

Countries Enact Trade Policies Based on Trade Theories, Which, in Turn