Dramatic improvements in transportation and communications have made it much easier for exporters and importers to find alternative markets for their goods and services and to locate new suppliers for inputs needed in their production processes. The rise of small-volume carriers such as FedEx, UPS and DHL along with the significant fall in freight rates have made trade diversion and diversification easier and more profitable. As important, the cost of instant international communication and search has fallen to near zero.
The current trade diversion began when Mr. Trump’s first-term tariffs led China to shift its exports to other countries. Under Mr. Trump’s second-term tariffs, Chinese exports to the U.S. fell by 69% from February through September, but Chinese exports to other regions rose. Over these same months, Chinese exports to Association of Southeast Asian Nations member states were up by 61%, to Japan and Korea by 41%, to Africa by 35%, to the European Union by 28%, and to India and Latin America each by more than 10%. Oxford Economics analysts estimate China will close out 2025 having exported 8.3% more than last year, with its exports then holding steady in 2026. U.S. exports, by contrast, are projected to fall next year by 3.4%.
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