How to Sell a Sub-brand in a Global Supply Chain? The Impacts of Tariff Escalation

Abstract

Tariffs significantly influence the global supply chain structure of multinational firms (MNFs). This paper develops a game-theoretic model and analyzes three sub-brand introduction structures: sub-brand introduction with importing finished products, a joint venture (JV), or a wholly-owned subsidiary, and highlights the impacts of tariff escalation (i.e., differentiated tariff rates on finished goods and raw materials). Our results show that the MNF’s profit may increase with the ratio of tariff rate on raw materials to that on finished products, under JVs and wholly-owned subsidiaries. Compared to the no sub-brand model, the MNF benefits from introducing a sub-brand and importing finished products, but profits may be lower in the other two models. Additionally, when the fixed cost of setting up a factory is low, the wholly-owned subsidiary structure is the optimal; otherwise, the other two models should be preferred. Overall, there is no dominant sub-brand introduction structure for the MNF. However, the retailer consistently prefers importing finished products, as it reduces competition from the sub-brand. Our findings highlight how differential tariff rates fundamentally reshape MNFs’ optimal sub-brand introduction strategies, providing new insights for global supply chain design under tariff escalation.