Customs Union Trade Creation Steps:

• Calculate pre-union effective prices: add 20% tariff to T&T and US prices; Barbados imports from lowest effective price source (US, assuming its base price is lowest).
• Post-union: T&T imports duty-free (effective price = base price); US still faces 20% tariff; Barbados imports from T&T if its base price < US tariffed price and < domestic price.
• Compare: pre-union, US effective price < T&T effective price, so import US; post-union, T&T base price < US effective price, so switch to T&T.
• Result: imports shift from US to T&T due to duty elimination on intra-union trade.

Why C is correct:

• Customs union eliminates internal tariffs, creating trade by favoring lower-cost partner (T&T) over tariffed external source (US), per Viner's trade creation effect.

Why the others are wrong:

• A: Pre-union imports occur from US (lowest tariffed price), not neither.
• B: Post-union favors duty-free T&T over US, not US.
• D: Post-union imports only from T&T (duty-free cheapest), not both.

Final answer: C