CourseCourseQ BankQuestion BankDocsDocuments

4.4.8 (HL)—Trade diversion

Syllabus
First assessment 2022
Objective
4.4.8
Level
HL

Trade diversion: a bloc can replace the cheapest supplier

HL only

Trade diversion occurs when an external tariff makes a lower-cost non-member supplier more expensive than a higher-cost member. Imports then switch to the member even though the underlying production cost is higher.

The bloc may gain tariff revenue or political benefits, but the economy can lose the efficiency of buying from the cheapest source. State the external tariff and compare partner and non-member costs before calling a change trade diversion.