One of the key reasons that imports of certain finished goods of category A in country X have increased significantly is that it’s cheaper for country X’s retailers to import these goods than to purchase the same from local manufacturers. Hence, as it often happens, because of these increased imports, the value of country X’s currency has correspondingly decreased, making critical imports such as steel more expensive for the country.

The information above supports which of the following hypothesis about country X?

A. An additional significant import tariff on goods in category A will likely help increase the value of currency of country X in the coming future.
Explanation: imposing a significant import tariff will possibly reduce the import of category A goods because it will become more expensive than purchasing from a local manufacturer. As per the passage, currency value of country X decreased because of increased imports and therefore the currency might regain its value once the heavy import tariffs are implemented. - CORRECT

B. Appropriately subsidizing industries that import steel is likely to negate any impact that country X's currency devaluation has had on its GDP.
Explanation: This one is a good contender but what would happen if this trend continues. So subsidizing is not a feasible choice to regain the currency value because its only a temporary measure. - INCORRECT

C. Due to increased imports of category A goods, many consumers in country X have experienced lower prices than they paid before.
Explanation: So what? - Irrelevant - INCORRECT

D. The loss in local production of goods caused by corresponding increased imports has not had as severe an impact on the GDP of country X as has the increase in steel prices.
Explanation: IRRELEVANT

E. To prevent any further reduction in its currency's value, country X must restrict imports more severely than it currently does.
Explanation: There is an uncertainty here. 2 cases
1. Imposing much severe restrictions would not help the country to regain its currency value if they are already strict with their import regulations.
2. On the other hand, if the regulations are not strong enough, then it might be possible to regain the currency value.

Hence INCORRECT

Let me admit that this question was quiet tricky and feel free to correct me if my reasonings are incorrect.

Thank you
Arjun

As per the passage, currency value of country X decreased because of increased imports and therefore the currency might regain its value once the heavy import tariffs are implemented. - CORRECT
Increasing tariffs will lead to more restricted imports leading to currency value strengthening - So E is right answer.
Increasing tariffs is just one way of restricting imports.