A production subsidy for the export product will lower the local price of the export good, lowering the domestic terms of trade for the country. Hence the export subsidy and the import tariff have the same effect. This analysis seems to contradict the first sentence in this paragraph. Discuss this paradox.
While this (Lerner) equivalence may well occur domestically, internationally the tariff will improve a country’s terms of trade. An export subsidy on the other hand will in fact lower the international price of the (now readily available) export good, hence hurting a country’s terms of trade.