China’s exports to the US have fallen sharply this year, while its exports to the rest of the world have soared in an almost one-for-one offset. It’s not hard to understand why exports to the US are down. After all, tariffs are pushing up prices for goods imported from China, as I discussed in a recent post. Higher prices mean lower demand, which means tariffs equate to a negative demand shock for China. It’s less obvious why China’s exports to the rest of the world are up so much. There’s two possible explanations. The first is that China is using third countries to transship goods to the US. That would explain why ... (full story)