Trade creation and trade diversion Suppose that with free trade, the cost to the United States of importing a keyboard from Mexico is $13.00, and the cost of importing a keyboard from China is $11.00. A keyboard produced in the United States costs $18.00.
Suppose further that before NAFTA, the United States maintained a tariff of 75% against all keyboard imports. Then, under NAFTA, all tariffs between Mexico and the United States are removed, while the tariff against imports from China remains in effect. Assume that the tariff does not affect the world price of keyboards.
In the following table, indicate which country the United States limported keyboards from before NAFTA. Then indicate which country the United States emported keyboards from under NAFTA. (Note: Leave the row blank the United States doesn't import from either country).
United States Imports from...
Scenario Mexico China
Before NAFTA
Under NAFTA
In the folowing table, indicate whether each stakehoder gains, loses, or neither gains nor loses as a result of NAFTA.
Stakeholder Gains Loses Neither Gains nor Loses
Chinese producers
Consumers in the United States
U. S. government
Mexican producers
This is an example ofresulting from a regional agreement