Which of the following is a policy tool a country can use to counteract another country's use of subsidies to support an industry?

• A. Eliminating all domestic regulations
• B. Imposing countervailing duties on imported goods from the subsidized industry
• C. Reducing domestic taxes on all industries
• D. Increasing tariffs on unrelated goods

Answer: (B)

Verified step by step guidance

1. Understand the context: When one country subsidizes its industry, it effectively lowers the production cost for that industry, giving it a competitive advantage in international trade.
2. Identify the goal: The country facing competition from the subsidized industry wants to neutralize this advantage to protect its own domestic industries.
3. Review policy tools: Eliminating all domestic regulations or reducing domestic taxes on all industries are broad measures that do not specifically target the subsidized imports. Increasing tariffs on unrelated goods does not address the subsidized industry directly.
4. Focus on countervailing duties: These are tariffs specifically imposed on imported goods that have benefited from subsidies in their home country. The purpose is to offset the subsidy and level the playing field.
5. Conclude that imposing countervailing duties on imported goods from the subsidized industry is the targeted and effective policy tool to counteract foreign subsidies.