Trade creation would occur if Canada and the United States form a free trade area and the Canadians then import less steel from the United States while importing more steel from Japan.

Question

Quizplus · Accepted Answer

Trade creation occurs when a free trade area leads to an increase in trade between member countries due to lower trade barriers. In the scenario described, if Canada imports less steel from the US and imports more from Japan, this would result in trade diversion as there is a shift from more efficient US producers to less efficient Japanese producers.

Trade Creation Would Occur If Canada and the United States