An export subsidy is a form of government aid that provides financial assistance to domestic producers in order to increase their exports. It has similar effects on the domestic steel market as a tariff – namely, it raises the price of steel and increases its production and exports, while decreasing its consumption. This occurs because an export subsidy essentially acts as an additional cost for foreign purchasers, who must pay more for the same product than what would be paid domestically, thereby making importing from abroad less attractive.

Leading to an increase in domestic prices; this is due to the fact that without competition from other countries, domestic producers now have more negotiating power when setting prices. Higher prices lead to increased production because firms can now afford higher costs associated with production such as labor or materials needed. With increased supply comes increased exports as well since there are now more products available for shipment outside of the country.

On the flip side however, this also leads to decreased demand and consumption due again to higher prices ; consumers are less willing or able to purchase goods at high costs , resultingin fewer sales . Also if international buyers find they can not purchaseat competitiveprice levels then they may choose procureelsewh er e instead furthercausingdomestic demand drop .