I have an issue with sharing that I can't figure out.

Site-level sharing settings:
Re-Share items: enabled
Share with internal users: enabled
Share with All Internal Users: disabled
Share with External Users: enabled
Share with Public: disabled

Now, an internal user shares a file from their My Files with another internal user...
1. giving rights: Viewer, Share with External. Result - recipient of the share cannot re-share the file.
2. giving rights: Viewer, Share with Internal. Result - recipient can re-share the file.
3. giving rights: Editor, Share with External. Result - recipient can re-share the file.

Why does (1) happen?