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LIANYUNGANG, CHINA – APRIL 11, 2025 – A worker is seen producing plush toys intended for export along the Belt and Road Initiative at a toy manufacturing facility in Lianyungang, Jiangsu province, China on April 11, 2025.
China’s manufacturing sector experienced a more significant decline than anticipated, hitting a near two-year low as it slipped into contraction in April. The ongoing trade conflict with the United States has exacerbated challenges for bilateral trade.
The official purchasing managers’ index (PMI) recorded a value of 49.0 in April, as reported by the National Bureau of Statistics on Wednesday. This figure falls below the crucial 50-point mark, indicating a shift from growth to contraction for the first time since January.
This reading was below analysts’ predictions of a 49.8 contraction according to a Reuters poll, signaling a considerable deceleration following an uptick in manufacturing activity in March, when exporters rushed to ship goods to preempt forthcoming higher tariffs.
In a related finding, the Caixin/S&P Global manufacturing PMI also indicated a slowing trend, dropping to 50.4 in April, down from 51.2 in March, suggesting a modest expansion, yet still outperforming the 49.8 forecast.
Meanwhile, the PMI for non-manufacturing sectors, which includes services and construction, edged down to 50.4 in April, compared to 50.8 from the previous month.
This downturn follows significant tariff increases imposed by U.S. President Donald Trump, who has implemented cumulative tariffs of 145% on various Chinese products this year. Most of these tariffs came into effect in April, based on his “liberation day” declarations, raising total tariffs on specific items from China to as high as 245%, as detailed in a White House fact sheet.
In response, China implemented its own tariffs of 125% on U.S. goods and criticized the U.S. tariffs as a “meaningless numbers game.”
Trade flows between both nations have been severely affected by the escalating tariff skirmishes, as noted by Chetan Ahya, chief Asia economist at Morgan Stanley. He cited a notable decrease in the number of container ships departing from China bound for the U.S., leading to a year-on-year contraction in shipments.
Despite ongoing trade negotiations showing little tangible progress, there are reports suggesting some easing of tariffs to mitigate the economic fallout. China has introduced tariff exemptions for several U.S. products, including pharmaceuticals, aerospace equipment, and semiconductors, along with ethane imports.
Additionally, on Wednesday, Trump signed an executive order exempting foreign car and parts imports from extra tariffs, following a recent rollback on tariffs affecting a range of electronic goods earlier this month.
Nevertheless, estimates from Nomura suggest that approximately 2.2% of China’s GDP will be directly affected by the 145% U.S. tariffs, with around 9 million jobs in China’s manufacturing sector being at risk.
In a recent economic policy meeting, Chinese officials committed to supporting businesses and employees bearing the brunt of the U.S. tariff impacts. They also underscored the urgency of implementing more proactive fiscal strategies along with “moderately loose” monetary policies to bolster the economy.
While numerous major financial institutions on Wall Street have revised their GDP forecasts for China downwards due to trade-related challenges, Beijing maintains confidence in achieving its goal of “around 5%” economic growth for the year.
“Mitigating the effects of tariffs might necessitate doubling the stimulus efforts this year,” stated Dan Wang, China director at risk advisory firm Eurasia Group, who anticipates that China’s exports to the U.S. could decline by half amid the ongoing trade conflict.
Wang further indicated that Beijing may need to allocate at least an additional 2 trillion yuan in fiscal measures to counter the 2% GDP loss expected due to these tariffs.
Despite claims from the Trump administration regarding ongoing trade talks with China, Beijing has consistently denied any engagement in negotiations to resolve the tariff disputes with Washington.
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