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In 1950, the Canadian-born Princeton University economist Jacob Viner explained a customs union produces a “trade creation” effect, as lower tariffs and non-tariff barriers spur increased flows of goods among member countries. But Viner noted that a customs union also generates a “trade diversion” effect, as countries that are not part of it face reductions in their trade with countries that are. By raising trade barriers with its major trading partners — especially China — the United States now risks negative trade-creation and trade-diversion effects.

Of course, the U.S. is not part of a customs union. But the trade creation and diversion effects can be seen, to varying extents, with any free-trade area — even an arrangement as broad as the World Trade Organization. So when, for example, U.S. President Donald Trump withdrew from the Trans-Pacific Partnership — which is now moving forward as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership — it effectively doomed the U.S. to a reduction in trade with the countries it deserted, as they increase trade with one another.

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