When developed countries extend tariff preferences to developing countries and imports from the latter displace imports from the former, a phenomenon known as _____ is taking place.

Question

Quizplus · Accepted Answer

Trade diversion occurs when the establishment of a preferential trade agreement (such as tariff preferences) causes imports to shift from a more efficient producer outside the agreement to a less efficient one within the agreement, due to the preferential treatment.

When Developed Countries Extend Tariff Preferences to Developing Countries and Imports