If trade diversion is more important than the creation of trade, the formation of the customs union or the free trade agreement would reduce global well-being. If the creation of trade is more important, global well-being will be strengthened. “The merchandise balance between the United States and Mexico has been negative and has grown steadily over the years. In 2010, it was $61.6 billion, or 9.5% of the total merchandise trade deficit in 2009. “Multilateral trade liberalization, in which all countries reduce their trade barriers at the same time, is the best way to promote trade on the basis of comparative advantages. However, countries can abuse the system by begging-Thy-neighbor-Poli Geza Feketukuty, the main US negotiator for services in the Uruguay round, gives a wonderful anecdote of the early efforts to start negotiations on trade in services: “The Swiss delegate . . . trade in services by pointing out how impossible it was for him to have his hair cut in another country by a hairdresser. The chairman of the committee. . he replied that every woman in Germany had benefited enormously from French exports of hairdressing services, and she was convinced that the delegate`s wife would confirm that this was the case in Switzerland.

[23] This is the result of multilateral trade negotiations for certain products. For example, a country reduces tariffs on products that are not sensitive to imports – often because they are not manufactured in that country – more than tariffs on import-sensitive products. In a free trade agreement whose end result is a zero tariff, it would have no effect if the agreement were fully implemented. However, during the transitional period, this could be very relevant for some products. However, beyond this exception, the removal of tariffs or other trade barriers increases trade in the product, and that is the intent of the trade agreement. Economists are not concerned about these cyclical trade deficits or surpluses. Moreover, they are not worried when there is a deficit, because the country borrows heavily abroad to finance investments that will then be repaid. During the 19th century, the United States remained in this position, when it invested heavily to build railways across the continent, steel mills and other long-term investments.

That is not the situation in the United States today. Today, it borrows many other countries to finance short-term consumption, such as the newest and largest HDTVs in Japan or South Korea, and these purchases do not generate income to pay off their debts in the future. In addition, as part of trade diversion, the importing country loses the customs revenue it has collected for imports that now come from its duty-free bloc partner. The consumer in the importing partner wins because the imported goods are no longer dependent on customs fees; However, the benefit of the consumer is necessarily less or equal to the shortfall in tariffs, so that the nation as a whole is doing less well. Thus, the diversion of trade harms both the importing country and the rest of the world. These losses are greater than the benefits to the bloc member who obtains exports due to traffic diversions. From the time of Adam Smith in 1776 until the introduction of the GATT in 1947, the theory of economic trade developed quite slowly. However, since the creation of the GATT in 1947, there have been a number of significant changes in the traditional Western economic theory of international trade. These amendments largely update the fundamental theory of trade to reflect the new realities of industry and trade.