Tariff effect on terms of trade

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Assume that one nation subsidizes is exports and other country imposes a countervailing tariff that offsets effects, so that in the end relative prices in the second country are unchanged. What happens to the terms of trade? What about welfare in the two countries? Suppose, on the other hand, that the second country retaliates with an export subsidy of its own. Contrast the result.

Reference no: EM1368073

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