Rising U.S. tariffs on imports of Chinese products are exerting pressure on the world’s second-largest economy as export orders decline, according to monthly reports from Chinese factory managers released on Wednesday.
The official survey from the China Federation of Logistics and Purchasing indicates that export orders decreased significantly in April. This comes amidst ongoing tensions between Beijing and Washington, following U.S. President Donald Trump’s decision to impose tariffs of up to 145% on Chinese goods.
In retaliation, China has levied tariffs of up to 125% on imports from the U.S., although some exceptions exist. Additionally, China has introduced further retaliatory actions, like imposing stricter limits on the export of certain critical minerals used in high-tech products, including electric vehicles.
American businesses are reacting by canceling orders from China and delaying growth plans as they await further developments. The official manufacturing purchasing managers index (PMI) dropped to 49.0 in April from 50.5 in March, with 50 being the demarcation line between expansion and contraction. Meanwhile, a private survey conducted by the financial information group Caixin showed a decline from 51.2 to 50.4.
“While the sharp fall in the PMIs may exaggerate the impact of tariffs due to negative sentiment, it nonetheless points to mounting pressure on China’s economy as external demand diminishes,” Zichun Huang of Capital Economics commented.
Large manufacturers are expected to suffer more than smaller, labor-intensive ones, as China maintains a cost advantage in such industries, according to economists at ANZ Research. “China’s production costs for light industries can be as low as one-fifth of those in the U.S., a situation unlikely to shift,” they noted in a report.
Earlier this week, China’s senior economic officials held a press conference, underscoring Beijing’s support for the economy and emphasizing their capability to counteract the tariffs’ impact. The economy grew by a steady pace of 5% annually in 2024, and the ruling Communist Party aims to sustain growth at approximately this rate. However, this was before Trump intensified the trade conflict with additional tariffs designed to force manufacturers to relocate production back to the U.S.
“Overall, the expansion in supply and demand decelerated in April, with exports hampered and slight employment declines. Manufacturers worked to cut stock levels, logistical operations were delayed, and prices remained under strain. Market optimism fell sharply,” noted Wang Zhe, a senior economist at Caixin Insight Group.
Business sentiment is near its lowest recorded levels, Wang elaborated. Private economists have revised downward their economic forecasts for the current and following year. Capital Economics projects a mere 3.5% growth for the economy by 2025. The economy experienced a 5.4% growth during the first quarter compared to the same period last year, driven by companies hastening to preempt the higher tariffs. Chinese exports surged over 12% year-on-year in March.
Although some Chinese exports might be rerouted to other countries, Trump’s trade war elevates the risk of recession in the U.S., with anticipated repercussions for the global economy. Recent updates from the International Monetary Fund indicate a bleak outlook for the U.S. and global economies this year and the next. Their forecast for global economic growth was lowered from 3.3% in January to just 2.8% this year.