What is trade diversion and how does it affect supply chains?

Trade diversion occurs when tariffs and trade barriers cause exporters to redirect goods to alternative markets instead of paying duty costs. In this case, Chinese exporters facing EU tariffs may reroute shipments through third countries or alternative ports, extending lead times, increasing complexity, and potentially raising logistics costs across different corridors.

How should companies adjust their sourcing strategies in response to tariff-driven trade flows?

Organizations should diversify sourcing geographically beyond direct EU-China trade lanes, evaluate transshipment and consolidation hubs that may benefit from redirected flows, and build flexibility into procurement contracts to switch suppliers or routes if tariff policies change. Supply chain scenario modeling is essential to quantify exposure.

Which ports and trade corridors are likely to see increased volumes due to trade diversion?

While the article focuses on EU-China trade dynamics, transshipment hubs in Southeast Asia, Middle Eastern ports, and alternative European gateways (especially those with preferential trade agreements) may experience volume shifts as Chinese exporters seek to minimize tariff impact through alternative routing.

What operational risks emerge from tariff-induced trade diversion?

Key risks include extended transit times due to indirect routing, congestion at alternative ports and transshipment points, potential delays in customs clearance through new corridors, increased inventory holding costs, and supply chain visibility challenges when goods move through unfamiliar trade routes.

How does this research inform inventory positioning and buffer stock decisions?

Trade diversion lengthens and destabilizes lead times, making predictable inventory planning more difficult. Supply chain teams should increase buffer stock for EU-bound goods, pre-position inventory closer to final markets, and implement real-time tracking systems to compensate for longer and less predictable transit times via diverted routes.

Trade Policy & Tariffs

High Impact

How EU Tariffs Redirect China's Export Flows in Global Trade

Apr 22, 2026

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The signal

This CEPR research examines the mechanisms through which European Union tariffs on Chinese exports generate trade diversion effects—a phenomenon where tariff barriers cause exporters to redirect shipments to alternative markets rather than absorb the duty costs. The study provides quantitative analysis of how trade policy instruments alter international commerce patterns, with direct implications for supply chain routing, sourcing strategies, and inventory positioning. For supply chain professionals, this research highlights the cascading effects of regional protectionism on global logistics networks.

When tariffs make direct EU market access expensive, Chinese exporters may redirect goods through intermediate markets, transshipment hubs, or establish supply chain restructuring that bypasses tariff exposure. This can create bottlenecks in alternative trade corridors, increase lead times on certain routes, and shift container flows between ports globally. The strategic takeaway is that tariff policy is not merely a compliance cost—it fundamentally reshapes global trade flows and creates both risks and opportunities.

Companies should model alternative sourcing and routing scenarios, monitor tariff escalation across regional trade blocs, and consider supply chain diversification to maintain resilience against policy-driven trade diversion.

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Simulation Suggestion

this month

What if companies need to source 20% of EU-bound inventory from non-China suppliers due to tariff costs?

Simulate supplier diversification in response to prohibitive tariff costs, modeling a scenario where 20% of EU-destined inventory shifts to alternative sourcing regions with lower or preferential tariff treatment (e.g., Vietnam, India, Mexico). Evaluate lead time changes, supplier reliability risk, and cost implications.

Run this scenario

Simulation Suggestion

this month

What if direct China-EU shipping lanes see 30% volume loss due to tariff avoidance routing?

Model a supply chain scenario where tariff-driven trade diversion reduces direct shipments between China and EU ports by 30%, forcing logistics planners to adopt longer, indirect routes through intermediate markets. Assess impact on container availability, port congestion at alternative hubs, and total cost of ownership.

Run this scenario

Simulation Suggestion

strategic

What if EU tariffs increase by 25%, causing 30% of Chinese exports to divert to alternative routes?

Simulate the impact of elevated tariff rates on China-EU trade flows, modeling a scenario where one-third of direct shipments redirect through alternative transshipment corridors (e.g., Southeast Asia hubs or Middle Eastern ports), extending average transit times by 10-14 days and increasing per-unit logistics costs by 8-12%.

Run this scenario

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Supply Chain Digital Twin: The 2026 Guide

How operators model end-to-end supply chains to see how tariffs, supplier shocks, and regulatory changes ripple across cost, service, risk, and time.

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