What is trade diversion? Explain how this can impact trade when an FTA is formed.
- What is trade diversion? Explain how this can impact trade when an FTA is formed.
Homework Answers
It can be mentioned that trade diversion is nothing but the changing trade from one country to another country for the same good due to the beneficial values with processes such as a customs union a monetary union and the free trade. For example when NAFTA formed, for the United States trade is diverted from European countries to Canada and Mexico. When an FTA is formed, free diversion impact trade in a huge extent and this is because of the lower tariff rate where the cost of goods become less expensive as a result of which the trade volume increases on a huge scale all in all.
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What is trade diversion? Explain how this can impact trade when
an FTA is formed.
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