Suppose that the United States, China, and Mexico are the only three countries in the world. Further
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Suppose that the United States, China, and Mexico are the only three countries in the world. Further suppose that the United States initially has a $6 non-discriminatory import tariff on shirts, then subsequently forms a free trade area with Mexico.
The Chinese cost of producing shirts is $9 and the Mexican cost is $12.
In the case of a non-discriminatory tariff, the United States imports 1,600 shirts.
After formation of the free trade area, the U.S. imports 2,200 shirts.
What is the dollar value of trade creation?
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