Subsidy vs Tariff

A subsidy is a government payment to producers to lower production costs and encourage output.

Governments use subsidies to support industries they consider important, such as agriculture or renewable energy. By lowering costs, subsidies allow producers to increase output and offer goods at lower prices. However, subsidies can lead to market inefficiencies and overproduction.

A tariff is a tax on imported goods that raises their price and protects domestic producers from foreign competition.

It raises government revenue and helps domestic producers, but raises prices and reduces quantity for consumers, creating deadweight loss. It reduces imports and the overall gains from trade. Tariffs are a common form of trade protection.