Suppose that the U.S.imposes a countervailing duty of 10% on
Coated paper imported from China to offset alleged Chinese subsidies.
Suppose further that the U.S.dutyfree price of Chinese coated paper
Imports is $500 per 1,000 meter roll and that the price of an
Equivalent roll of U.S.made coated paper is $600 per 1,000 meter
Roll.What is the likely response of Chinese coated paper exporters to
The U.S.countervailing duty?

Question

Suppose that the U.S.imposes a countervailing duty of 10% on
Coated paper imported from China to offset alleged Chinese subsidies.
Suppose further that the U.S.duty­free price of Chinese coated paper
Imports is $500 per 1,000 meter roll and that the price of an
Equivalent roll of U.S.­made coated paper is $600 per 1,000 meter
Roll.What is the likely response of Chinese coated paper exporters to
The U.S.countervailing duty?

Quizplus · Accepted Answer

If the Chinese exporters reduce their U.S. duty-free price of their exports so that their U.S. prices, including the duties, are less than $600 per 1,000 meter roll, they will still be able to compete with U.S. made coated paper. Reducing their U.S. duty-free price by one-half (option B) is too significant and not practical, and absorbing all of the duties (option A) would result in a loss for the Chinese exporters. Option D is not feasible as it would result in the Chinese exporters having a higher price than the U.S.-made coated paper, making it uncompetitive. Therefore, option C is the most appropriate response for the Chinese exporters.

Suppose That the U