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A policy change made to punish another firm or country for its actions. In a trade war, for example, country A retaliates to quotas on its exports to country B by imposing quotas on B's goods. It is difficult in practice to distinguish between deliberate retaliation and policy changes which are simply a reaction to a worsening in country A's position. If a fall in exports to country B worsens country A's balance of payments, A may restrict imports for balance-of-payments reasons; while a fall in its exports injures country B, this is a side-effect rather than an objective of country A's policy.

Subjects: Economics.

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