Trade Diversion versus Trade Creation in Joining a Trade Bloc: UK Market for Imported Compact Cars
(Figure 12.2)

If German producers can supply cars almost as cheaply as the Japanese, then there won't be much cost from diverting Britain's customers away from Japanese compact cars. Case B assumes that the trade-diversion cost is only £100 on each of the diverted 10,000 cars. At the same time, there is a lot of trade creation in case B. Removing the £1,000 tariff on German cars cuts the price of imports from the old £6,000 on Japanese cars with tariff to £5,100 on German cars without tariff, resulting in a substantial gain. In case B, there is a net national (and world) gain from the effects of the customs union on trade in this kind of automobile.