For countries forming a customs union, the trade creation effect represents a welfare loss and the trade diversion effect represents a welfare gain.

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For countries forming a customs union, the trade creation effect represents a welfare gain and the trade diversion effect represents a welfare loss. Trade creation is the result of lower tariffs within the customs union, leading to increased trade and economic efficiency. Trade diversion is the result of higher tariffs between the customs union and non-member countries, leading to less efficient allocation of resources.

For Countries Forming a Customs Union, the Trade Creation Effect