Suppose a Chinese firm moves its final assembly line to France and then ships the final products to other members of the EU trading bloc. This is an example of
A) trade diversion.
B) trade deflection.
C) trade restriction.
D) trade detection.

Question

Quizplus · Accepted Answer

This is an example of trade deflection, which refers to the diversion of trade flows to a third party country in order to circumvent trade barriers between the original exporting country and the importing country. In this case, by moving its final assembly line to France, the Chinese firm can avoid trade barriers that may exist between China and other members of the EU trading bloc, thus deflecting its trade to France. Trade diversion refers to the re-routing of trade flows from a more efficient producer to a less efficient producer within a free trade area, which is not applicable in this scenario. Trade restriction refers to any measure that restricts or limits international trade, which is not the case here. Trade detection is not a recognized term in international trade.

Suppose a Chinese Firm Moves Its Final Assembly Line to France