China’s merchandise trade surplus has tripled since early 2018 and now stands at roughly 1.2 trillion dollars a year. The United States trade deficit has doubled over the same period to a matching 1.2 trillion dollars, a correspondence that reflects how much of China’s excess production is absorbed by American demand. Those two facts are related, and a Federal Reserve analysis published September 22 explains why the gap is larger and more persistent than most standard measures have captured. The upshot for your business is not abstract.

Here is the mechanism. When a country runs a surplus of that size, it is producing far more than its own consumers are buying. The excess has to go somewhere, and it flows outward as goods priced to sell abroad. For the countries receiving those goods, particularly the United States, that inflow competes directly with domestic producers and puts a floor under the availability of imports even when tariffs are in place. The share of US imports coming directly from China has fallen sharply, from above 21 percent in 2018 to roughly 8 percent now. But the total deficit has grown, which means the same goods are arriving through third countries, re-routed but not reduced.

That re-routing matters for how you interpret your own input costs. A tariff on a direct Chinese import raises the price of that specific item. A re-routed import, moving through Vietnam or Mexico or elsewhere, may carry lower tariff exposure while still reflecting Chinese manufacturing economics at its base. The result is that the tariff burden falls unevenly across your supply chain, and the apparent savings from sourcing outside China can be smaller than the invoice suggests. Even goods that did not originate in China carry embedded Chinese input costs if their components did.