U.S. firms can produce and sell electric fans for $35. The United States can also import electric fans from China at $26 each and from Canada at $20 each. Electric fans made in the United States, China, and Canada are identical. Currently, the United States imposes a 50% tariff on imported electric fans.

Suppose that the United States forms a free-trade area (FTA) with China. For the United States, are there trade diversion losses, trade creation gains, or both as a result of the formation of US-China FTA?

A. There are neither trade creation gains nor trade diversion losses.

B. There are both trade creation gains and trade diversion losses.

C. There would be only trade diversions losses.

D. There are only trade creation gains.