Assignment #4
1. With free trade the United States imports about half of its steel consumption from Brazil. What
would be the impact on the United States of an export subsidy on steel provided by the Brazilian
government? Would it be beneficial for the U.S. if they impose an equal amount of countervailing
duty on the import of steel? Why or why not? In your explanation, use graphs as appropriate.
The below diagram illustrates the U.S. market for steel, and evaluates the impact of the export subsidy
provided by the Brazilian government:
If we assume that the current world price is $300 per ton, after the Brazilian government provides a
subsidy on steel exports, the price of the imported steel in the U.S. market will fall to $250. Steel
consumers in the U.S. gain an additional consumer surplus equal to the area (v + w + y + z). Producers
lose a surplus equal to the area ‘v‘. The net benefit to the U.S. from the Brazilian export subsidy is