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What is a trade deflection?

Updated: 10/27/2022
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14y ago

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When two or more countries form a free trade area, they do not have tariffs that are homogeneous with respect to the rest of the world. Consequently, it is possible for one country then to import all of a certain good that the other country previously imported, only to turn around and trade it to Another Country in its free trade area. This lowers the amount of government revenue in the consuming country and can lead to decreases in surplus.

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