Trade diversion is one reason that some economists:
A) believe we should not even bother to promote free trade.
B) recommend we change our focus from regional trade agreements to the WTO, a multilateral trade agreement.
C) recommend we reinstate some tariffs that were actually beneficial to all nations.
D) think we should exclude low-wage nations from trade agreements.

Question

Quizplus · Accepted Answer

Trade diversion occurs when a regional trade agreement leads to a shift in trade away from more efficient producers outside the region toward less efficient producers within the region. This reduces the overall welfare gains from trade. However, trade diversion is not a reason to abandon free trade entirely. Instead, it suggests that the focus should be on multilateral trade agreements that encompass all nations and reduce the need for regional agreements that can create trade diversion. Therefore, choice B is the best answer.

Trade Diversion Is One Reason That Some Economists