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What happens to the terms of trade

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Suppose that Country X subsidizes its exports and Country Y imposes a "countervail- ing" tariff that offsets the subsidy's effect, so that in the end, relative prices in Country Y are unchanged. What happens to the terms of trade? What about welfare in the two countries? Suppose, on the other hand, that Country Y retaliates with an export subsidy of its own. Contrast the result.

Reference no: EM13868611

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