Customs Unions Could Boost or Hinder Trade Depending on Delicate Balance
The study discusses a "hybrid" customs union, which combines both creating and diverting trade effects. Depending on the balance between these effects, an ally's benefit from joining the union can change. If creating trade outweighs diverting trade, then benefits increase; if the reverse is true, benefits decrease. When these trade effects are equal, the benefits for an ally may not change. The research challenges the common belief that customs unions only lead to one or the other – they can actually have a mix of both effects.