Most people seem to think of trade as happening between only two countries. If tariffs reduce U.S. imports from China, many -- including President Donald Trump -- seem to assume that the affected industries will move production to the U.S. But that’s not how things work, which is why other countries might actually benefit from the U.S.-China trade war.
Trade happens among a large network of countries, and this is even more true in the modern economy of fragmented global supply chains. Economists have long understood that in such a network, some countries could actually benefit from a reduction in trade between others -- a phenomenon known as trade diversion. Thus, U.S. tariffs on China are probably helping some third countries, as industries that used to export from China to the U.S. shift their production facilities elsewhere.
