If a customs union included all of the countries in the world, there could exist only trade creation, not trade diversion.

Question

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In a customs union comprised of all countries in the world, there would be no external tariffs on imports, meaning that trade diversion - the shifting of trade from a lower-cost external supplier to a higher-cost internal supplier due to the imposition of a tariff - would not be possible. Therefore, the only potential outcome of the customs union would be trade creation, where trade between member countries increases due to the removal of internal tariffs.

If a Customs Union Included All of the Countries in the World