China¡¯s factory output suffers worst fall in 16 months as Donald Trump¡¯s 145% tariffs hit hard; here¡¯s what we know

China¡¯s manufacturing activity shrank in April at its fastest pace in 16 months, revealing new cracks in the country¡¯s already fragile post-pandemic economic recovery. As per Reuters, the sudden contraction comes right after the U.S. President Donald Trump announced his ¡°Liberation Day¡± tariff package, which imposed a 145% duty on Chinese imports, abruptly ending a brief period of growth in the sector.

Lowest PMI reading since December 2023

The official manufacturing Purchasing Managers' Index (PMI), released by the National Bureau of Statistics (NBS), dropped to 49.0 in April from 50.5 in March. This is the weakest reading since December 2023 and falls below the 50-point threshold that separates growth from contraction. The figure also missed analysts¡¯ expectations, who had forecast a PMI of 49.8 in a Reuters poll. Non-manufacturing PMI, which tracks services and construction, also declined to 50.4 from 50.8, though it remained just above the contraction mark.

Weak export orders and fading demand

China had earlier relied on advance shipments to buffer the impact of the looming tariffs, but with the levies now in place, that strategy has run out of steam. Factory owners are now facing the double burden of shrinking export orders and a lack of strong domestic demand. A private sector survey released the same day also showed a sharp decline in both export orders and overall factory activity. The yuan slightly weakened against the U.S. dollar after the data was released, signaling investor concern over early signs of economic damage.

Economists predict more trouble ahead

Economists believe the sharp fall in PMI may reflect negative sentiment on top of real weakness, but the trend is worrying nonetheless. Zichun Huang of Capital Economics stated that even with fiscal support from the government, China¡¯s economy is only expected to grow by around 3.5% this year. Huang also noted that the index tracking new export orders has dropped to its lowest level excluding COVID disruptions since April 2012.

Beijing¡¯s strategy: Stimulus over negotiation

Instead of negotiating with the U.S. to ease the tariff impact, Beijing has fast-tracked its 2025 stimulus plans to reduce the blow of losing a major trade partner. Zhao Qinghe from the NBS said the fall in manufacturing activity is largely tied to ¡°sharp changes in China¡¯s external environment.¡± In line with this, the Communist Party¡¯s Politburo recently pledged more support for affected firms and workers. Meanwhile, the National Development and Reform Commission (NDRC) plans to release new economic policies in the second quarter that reflect current market conditions.

US President Donald Trump | Credit: X

Growth forecasts cut by global institutions

Despite official optimism, global institutions have lowered their growth expectations for China. The IMF, Goldman Sachs, and UBS have all revised their forecasts for 2025 and 2026, predicting that China will fall short of its 5% growth target. Wang Qing, a leading macro analyst, said further cuts to interest rates and bank reserve ratios may be necessary. He also expects the PMI to remain in contraction in May, though possibly improving slightly to around 49.5 due to stable growth policies.

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