China’s Manufacturing Falters Under Weight of Trump-Era Tariffs

China's manufacturing sector saw its most rapid decline in over a year, with the April Purchasing Managers' Index (PMI) falling to 49.0, its lowest level since December 2023. This marked contraction, indicated by a reading below 50, occurs against the backdrop of the export-driven parts of the economy being pushed hard, and not in a good way, by the US tariffs. But the PMI decline also reflects many of the other problems impacting Beijing's industrial base.

The sharp downturn stems from external shocks, especially changes in the global trade environment. Across the country, manufacturers have been reporting a twin surge of order cancellations and production-line halts, especially those tied to exports bound for the United States. With demand rapidly evaporating, the pressure is now on policymakers to come up with some serious new policy measures.

Tariffs Deal a Major Blow to Exporters

The harm done by US President Donald Trump's 145% tariffs has been fast and clear. Issued as part of a fresh trade offensive, these duties have thrown many Chinese exporters into disarray. A separate measure of new export orders dropped to 44.7 in April, a level not seen since late 2022, when the country was still wrestling with recovery from pandemic disruptions.

Exporters are currently not engaging in production and shipment activities. This is due to the uncertainty surrounding tariffs. Exporters are already scaling back, and that's having a notable effect at just the wrong moment for the Chinese government. The trade measures are hitting real economic activity right now, and the industrial sector is already feeling the heat.

Beijing Eyes Targeted Stimulus Measures

Even though the officials have kept from launching big stimulus packages, Beijing is steadily moving in the direction of issuing targeted initiatives to help the hard-hit sectors. They're doing this by making it less troublesome for affected businesses to obtain the financing they need and by taking steps to coax consumers back into the marketplace. It's likely that these efforts will, in turn, lead to the issuance of more proposals, both fiscal and monetary, that are aimed at lifting the economy.

Zhao Chenxin, vice chairman of the National Development and Reforms Commission of China, indicated that the government has plenty of policy instruments at its disposal to tackle the current problems. He signaled that the government will speed up the implementation of already approved programs and seemed to commit to that effort. But the absence of any broad-sweeping, across-the-board stimulus seems to suggest a more cautious approach. This reflects a concern for overall financial stability and a wish not to upset the international trade situation any further than it already has been.

The tariff confrontation between Washington and Beijing has moved beyond the economic realm. Wang Yi, China's foreign minister, dismissed talk of a negotiations, saying that yielding to U.S. pressure would just encourage more of it in the future. Chinese media has been having a field day with his and other officials' remarks. The message: China is not going to back down.