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

Assume that the Canadian government imposes a countervailing duty of $50 per ton of imported steel. The duty inclusive price of imports in Canada rises back to $300. Press the "Show Countervailing Duty" button to show the effect on the graph. In the subsidy-plus-countervailing-duty situation, the world returns to the same price $300 and volume of trade (50 million tons) as with free trade. This makes good sense for world efficiency because the deadweight loss of excessive trade (area x in the figure) is eliminated. Canadian producers gain area v. Press the "Show Producers' Gain" button to show the change in Canadian producer surplus on the graph. Canadian consumers lose area v + w + y + z. Press the "Show Consumers' Loss" button to show the effect. The Canadian government collects area y as revenue from the countervailing duty. Press the "Government Revenue" button to show the effect. The net national loss to Canada of imposing the countervailing duty is area w + z. Press the "Canadian Net National Loss" button to show the effect on the graph.
The "Reset" button will clear the graph.