In almost all development countries, the initial thrust of their respective trade policies was to foster domestic industries whose production would replace imports. This was a natural and logical strategy, given that import-substituting production could count on an existing known domestic demand, promised some mitigation of national economic dependence, and could be protected easily from external competition through high tariffs, quotas, or subsidies of various kinds. Which of the following, if true, would weaken the strategy above?

A domestic demand may be unknown.

B Quotas are more regressive than tariffs.

C Subsidies and import constraints keep domestic prices high and impose a burden on consumers.

D Fast economic growth fosters inequality of income.

Solution

Correct Answer: Option C

Solution

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