ACCA Applied Knowledge · Business and Technology · Political and legal factors affecting business
A manufacturer in Country X sells most goods to Country Y. Country Y's government introduces a large subsidy for its own producers of identical goods. Which is the most likely consequence, and which of the following describes the measure's classification?
It is a non-tariff barrier. By subsidising domestic producers, Country Y lets them charge lower prices, weakening the competitiveness of imports from Country X. It is not a tariff, quota or embargo because it does not tax, cap or prohibit imports directly.
- AIt is a non-tariff barrier that lowers the relative competitiveness of imports such as those from Country XCorrect
- BIt is a tariff that raises the price of imports directly at the border
- CIt is a quota that sets a maximum import volume
- DIt is an embargo that bans all trade with Country X
Explanation
A subsidy to domestic producers lets them cut prices, making imports less competitive; it is a non-tariff form of protectionism. It is not a tax at the border (tariff), nor a volume limit (quota), nor a ban (embargo).
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