4.4.7 (HL)—Trade creation

Trade creation occurs when integration removes a barrier and demand switches from a higher-cost domestic producer to a lower-cost partner inside the bloc. The gain comes from using resources more efficiently, although adjustment may hurt the displaced domestic industry.

In a diagram or example, compare the pre-agreement domestic cost with the partner’s cost and then identify the consumers, producers and government affected. The label “creation” refers to a new import flow, not automatically to a gain for every stakeholder.