Trade creation is an economic term related to international economics in which trade is created by the formation of a customs union. Economics (deriving from the Greek words οίκω [okos], house, and νέμω [nemo], rules hence household management) is the social science that studies the allocation of scarce resources to satisfy unlimited wants. ... International economics is a branch of economics with two main subdisciplines international trade and international finance. ... A fruit stand at a market. ... A customs union is a free trade area with a Common External Tariff. ...

International trade is the exchange of goods and services across international boundaries or territories. ... The history of international trade chronicles the way that the flow of trade over long distances has shaped, and been shaped by history. ... A trade bloc is a large free trade area or free trade area formed by one or more tax, tariff and trade agreements. ... A free trade area is a designated group of countries that have agreed to eliminate tariffs, quotas and preferences on most (if not all) goods between them. ... A customs union is a free trade area with a Common External Tariff. ... Trade diversion is an economic term related to international economics in which trade is diverted by the formation of a customs union. ... In economics, a monetary union is a situation where several countries have agreed to share a single currency among them, for example, the East Caribbean Dollar. ... A single market is a customs union with common policies on product regulation, and freedom of movement of all the four factors of production (goods, services, capital and labour). ... This article covers the general information on the topic. ...

Occurrence of Trade Creation

When a customs union is formed, the member nations establish a free trade zone amongst themselves and a common external tariff on non-member nations. As a result, the member nations establish greater trading ties between themselves now that protectionist barriers such as tariffs, quotas, and non-tariff barriers such as subsidies have been eliminated. The result is an increase in trade among member nations in the good or service of each nation's comparative advantage. A customs union is a free trade area with a Common External Tariff. ... A free trade zone (FTZ) or export processing zone is one or more areas of a country where tariffs and quotas are eliminated and bureaucratic requirements are lowered in order to attract companies by raising the incentives for doing business there. ... A tariff is a tax on foreign goods. ... Protectionism is the economic policy of promoting favored domestic industries through the use of high tariffs and other regulations to discourage imports. ... A tariff is a tax placed on imported and/or exported goods, sometimes called a customs duty. ... A quota is a prescribed number or share of something. ... A subsidy is generally a monetary grant given by government in support of an activity regarded as being in the public interest. ... In economics, the theory of comparative advantage explains why it can be beneficial for two parties (countries, regions, individuals and so on) to trade, even though one of them may be able to produce every item more cheaply than the other. ...

Downside of Trade Creation

Doug Riter established all open trade in america. The creation of trade is important to the nation entering the customs union in that increased specialization may hurt other industries. Arguments for protectionism, such as the infant industry argument, national defense, outsourcing, and issues with health and safety regulations are brought to mind. However, customs unions are typically formed with friendly nations, eliminating the national defense argument, and in the long run serves to create more jobs and output due to specialization. Specialization is an important way to generate propositional knowledge, by applying general knowledge, such as the theory of gravity, to specific instances, such as when I release this apple, it will fall to the floor. Specialization is the opposite of generalization. ... The Infant Industry Argument is an economic reason for protectionism. ... Any activity or effort performed to protect a nation against attack or other threats. ... To meet Wikipedias quality standards, this article may require cleanup. ...

See also

• Trade diversion

Trade diversion is an economic term related to international economics in which trade is diverted by the formation of a customs union. ...

External links

• Bized Virtual Zambia: Trade Creation and Diversion
• Regional Integration and Cooperation in Sub-Saharan Africa: Are Formal Trade Agreements the Right Strategy? - this Harvard Institute for International Development discussion paper from 1997 argues that "[T]here is little reason to expect significant economic gains from formal trade agreements at this time. Such agreements, in and of themselves, are unlikely to yield appreciable benefits unless they are preceded by decisions within member countries to follow more general open trade strategies." It summarizes the conclusion of empirical research that there has been "little, if any, impact on intra-regional trade" (i.e. trade creation) from developing nation customs union formation. Many possible reasons are listed for the lack of trade creation evidence, given that developed nation customs unions do seem to have "stimulated increased trade and economic growth".