Critical reasoning question

I was in doubt whether to select B or E. I've selected B and as a matter of fact the answer is B (by the reference) but i'm still not totally sure why E is wrong?

I like this one a lot! CR questions that combine political and economic topics try to trick you into using outside information and ideas. Most prospective business school students have heard a few news stories about trade deficits and subsidies. However, if you use your own personal ideas about trade to pick an answer choice, you will frequently be led in the wrong direction.

Remember, the goal in the last sentence is to "lower the trade deficit without hurting Country A's consumers. In the prior sentence, "officials" claim that economic competition is aiding Country A's consumers. Therefore any solution for the trade deficit problem must preserve economic competition and help Country A's consumers.

We can therefore rule out answer choices A and C immediately as both would hurt country A's consumers. Increasing taxes or tariffs would necessarily lead to higher prices on consumer products. Answer choice D sounds like a lovely idea, but it is too weak to address the real problem. We are assuming that the trade deficit is a consequence of Country Z producing cheap products. Improving the quality of country A's products might help a little bit, but it will not solve the more fundamental problem of consumers wanting to purchase cheap products.

This leaves us with choices B and E. Choice E is a very typical solution to trade imbalances. In fact, many governments do subsidize domestic industries to maintain a competitive advantage. However we have to use only the information provided in the paragraph to determine the best answer. Look at answer choice E again closely and consider what it is really suggesting.

Why would subsidizing the companies that already produce goods at Country Z level prices help reduce the trade deficit? If their prices are already competitive, then they are likely already selling well within country A. Subsidizing them might help them sell more, and perhaps improve the trade deficit slightly. However this would not solve the real problem - the companies that cannot maintain their prices at Country Z levels. Those companies are still being undercut by cheaper goods from Country Z. The trade deficit will likely persist so long as this is the case. If this answer choice suggested subsidizing these less competitive companies, then it would be viable.

Answer choice B is the only one that can be derived from the passage. According to the passage, economic competition is good for consumers, and Country Z is selling its products well because it has low manufacturing costs. Therefore, country A can increase its competitiveness and reduce the trade deficit by encouraging its businesses to lower their labor costs.