A Foreign Export Subsidy and a Countervailing Duty
(Figure 11.6)

As we saw in the large-country case, the importing country is overall better off by the imposition of the export subsidy by the exporting country, but the import-competing industry is harmed. Under WTO rules, the government in the importing country is permitted to impose a countervailing duty. This figure shows the Canadian and international markets for cold-rolled steel. With free trade, Canada would import 50 million tons per year from Brazil at the free-trade price of $300 per ton. Then, the Brazilian government offers a subsidy of $50 per ton exported. If all of this is passed on to buyers, the export price declines to $250 per ton. Canadian imports increases to 80 million tons. Canadian production declines to 130 million tons. Canadian consumption increases to 210 million tons.
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