Trade Diversion

A shift in international trade caused by one nation giving trade preferences to another, resulting in a decline in trade with a third country.

The United Kingdom's (U.K.) import of lamb is a good example of trade diversion. Before the U.K. joined the European Union (EU), it imported most of its lamb from New Zealand. However, after Britain joined the EU the common external tariff made it less expensive to import from countries inside the EU than from New Zealand, making France the majority exporter of lamb to the U.K. In this instance, trade was diverted from New Zealand to France.