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. duty-free 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?
a. They will not change their U.S. duty-free price of their exports and absorb all of the duties.
b. They are likely to reduce their U.S. duty-free price of their exports by one-half.
c. They are likely to 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.
d. They are likely to reduce their U.S. duty-free price of their exports so that their U.S. prices, including the duties, are only slightly more than $600 per 1,000 meter roll.
Ans: c. They are likely to 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.
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