If a customs union includes the low-cost supplier of the world, there would be no adverse trade diversion effect that would counteract the positive trade creation effect.

Question

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If the customs union includes the low-cost supplier of the world, the union can import goods from this supplier at a lower cost. This would lead to positive trade creation effects (lower prices, increased consumption, and production), without any adverse trade diversion effects (shifting imports from higher-cost suppliers to this low-cost supplier).

If a Customs Union Includes the Low-Cost Supplier of the World