When the United States,Canada,and Mexico form a free trade area,and Mexico begins importing a product from Canada rather than from the lowest cost world producer.

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Trade diversion occurs when a free trade agreement redirects trade from a more efficient supplier outside the trading bloc to a less efficient supplier within the bloc. In this scenario, Mexico is choosing to import from Canada instead of the lowest cost producer, which may result in higher prices for the good and trade diversion from the more efficient producer outside the trading bloc.

When the United States,Canada,and Mexico Form a Free Trade Area,and