What is trade diversion and why is it relevant to Tariff Commission analysis?

• A. A shift of trade flows within the same product category due to domestic price controls
• B. Imports shifting to sources from other countries because of tariffs, affecting market dynamics and injury analysis
• C. The exclusion of certain imports from consideration
• D. A measure of domestic production efficiency

Answer: (B)

Trade diversion happens when tariffs or tariff preferences change the relative prices of goods enough that imports come from different countries than before—typically shifting from a cheaper supplier outside a preferential region to a relatively more expensive supplier inside the region. This change in where imports come from alters market dynamics and can influence injury analysis, because the tariff’s impact isn’t just on overall import volume or price, but on which countries supply those goods. In Tariff Commission analysis, this matters because the commission must assess whether injury to domestic producers arises from the tariff-induced shift in import sources, not merely from changes in global efficiency. The chosen description captures that idea: imports move to sources from other countries due to tariffs, affecting market dynamics and injury analysis.