Michael Pettis frequently  claims  that, by running large surpluses, China is forcing “the demand-suppressing cost of their policies onto their trading partners.” The idea here is relatively straightforward: by disincentivizing consumption within China, China’s policies are reducing domestic demand, which,  ceteris paribus,  reduces  global  demand. The problem with this logic should be fairly obvious:  ceteris  is not in fact  paribus . It assumes other countries passively hold their own demand fixed in response to suppressed Chinese demand. But if that were the case, we should expect to see excess unemployment in the rest of the world in response to rising Chinese surpluses. The empirical record decisively rejects this prediction: both  US  and  EU  unemployment was falling during China Shock 1.0 (2000-08), and post-2021 we’ve seen falling unemployment in the EU and stable full-employment in the US.…