What is the relationship between trade creation and trade diversion

Definition. **Trade creation refers to the cost of domestic production after the abolition of tariffs between member states within the Customs Union.

High commodities are replaced by low-cost goods in member countries, low-priced imported goods from member countries replace expensive domestically produced goods, and ** between member countries is created.

When some domestic products of a country in the Customs Union are derived from the allied countries.

When the substitution of imported products with a lower cost of production in another country is created. [2]

Conventional wisdom. Almost all economists agree that freedom maximizes the welfare of the world economy, and that the customs union can increase the welfare of the world economy, at least by removing tariff barriers between partner countries and imposing freedom in the region. Therefore, the creation of a customs union is beneficial for economic development.

However, according to Wair, the Customs Union does not necessarily mean a transition to freedom, as it imposes freedom between partner countries and protection of the outside world. This combination of freedom and protection has two effects: "creation" and "transfer".

Liberalization within the Customs Union allows high-cost domestically expensive products to be replaced by low-cost products of partner countries, which were originally produced domestically and are now imported from partner countries, and new ** is "created". The country can benefit from redirecting resources that used to produce high-cost products to produce lower-cost products. At the same time, the Customs Union implements a unified tariff on foreign countries, and discrimination against third countries leads to a decrease in imports from outside and a shift to imports from partner countries, which changes the direction of the first and produces a "first shift".

Losses were incurred by switching from low-cost products imported from the outside world to higher-cost products from partner countries.

1. Creation is the situation in which the original domestic production is replaced by newly created imports from partner countries in the alliance between member states after the establishment of the Customs Union. The effect is that the elimination of internal tariffs no longer protects low-productivity, high-cost domestic production, and replaces domestic production with low-cost imports from partner countries, thereby improving consumer welfare.

2. ** transfer is a young concept, the earliest ** transfer was proposed by the Canadian economist Wainer in the early 50s of the 19th century, the full name is "** creation and ** transfer theory". It refers to the fact that the products of one country are exported to other countries in large quantities after being subjected to the ** safeguard measures of another country. The economic effects of the Customs Union are concentrated in two aspects: creation and transfer.

** Diversion refers to the process and phenomenon of products being imported from countries with lower production costs in the past to those imported from countries with higher costs, which should be noted in the process of integration.

**Creation refers to the abolition of tariffs between member states within the Customs Union, goods with high domestic production costs are replaced by goods with low production costs in member countries, and low-cost imported goods from member countries replace expensive domestically produced goods, and ** between member countries is created.

**Transfer is a young concept, the earliest appearance of **transfer was proposed by the Canadian economist Wajna in the early 50s of the 19th century, the full name is "trade group call collapse easy to create and ** transfer theory". It refers to the fact that one country's products are exported to other countries in large quantities after being subjected to the first safeguard measures of another country.

When a country is selected to form a free zone, tariff rents and non-tariff barriers are eliminated between member states, so that production can be shifted to the most efficient one in the zone (b) and more benefits will be generated. In this way, country A no longer produces product X by itself, but imports from country B, because domestic production of A costs 10 dollars, and imports only 8 dollars. For A, country A's consumption of this product has decreased sharply, and the capital has been used for the consumption of other commodities, expanding social demand, increasing the amount of goods, and improving the level of social welfare.