Chinese factory activity plunges near 2-year low as Trump tariffs hammer trade

Factory activity in China plunged to a near two-year low in April as President Trump’s steep tariffs hammered trade between the world’s two largest economies.

The nation’s purchasing managers’ index came in at 49.0 in April, falling below the 50-level threshold that separates expansion from contraction for the first time since January, according to data released by China’s National Bureau of Statistics on Wednesday. 

The figure missed analysts’ expectations of a 49.8 contraction, and marked the weakest reading since May 2023, according to LSEG analysts.

It followed an impressive month in March, when China’s manufacturing activity grew at its fastest rate in a year as companies rushed to import goods from the nation ahead of Trump’s 145% tariff.

The indexes for production and new orders also plummeted to 49.8 and 49.2, respectively, according to the Bureau of Statistics.

Raw material costs and output prices also fell, to 47.0 and 44.8, respectively.

Caixin and S&P Global’s manufacturing PMI, which measures China’s private sector, slowed to 50.4 in April from 51.2 the month before. Analysts had expected a 49.8 reading.

China’s PMI for non-manufacturing activity, which includes services and construction, declined to 50.4 in April from 50.8 the previous month. 

Employment fell in most areas, except in the services sector.

The bureau’s senior statistician Zhao Qinghe said the drop in factory activity was due to “drastic changes in the external environment,” according to a statement in Chinese translated by CNBC.

“The drop in the PMIs likely overstates the impact of tariffs due to negative sentiment effects, but it still suggests that China’s economy is coming under pressure as external demand cools,” Zichun Huang, China economist at Capital Economics, said in a note.

While China’s government is ramping up fiscal stimulus, it’s unlikely to fully offset the drag from exports, Huang said. The economy will likely expand by just 3.5% this year, she added.

China struck back at Trump’s tariffs with a 125% tariff on US imports as trade between the two nations slowed.

There has been little evidence of progress on trade talks, as China recently denied meeting with White House officials on the tariffs. Trump has maintained that there have been trade talks between the two countries.

In the meantime, the two governments have been attempting to ease consumer pain, with China granting tariff exemptions on pharmaceuticals, semiconductors and aircraft engines. 

China has also created a list of further US goods to be excluded from its import taxes and is quietly notifying companies, according to a Reuters report.

Trump, meanwhile, signed an executive order on Wednesday that attempts to ease the impact of the tariffs on the auto industry, excluding foreign car and auto parts from additional levies on steel and aluminum.

Earlier this month, the US also exempted electronics, like smartphones and computers, from the wide-ranging tariffs.

Despite the exclusions, Nomura economists anticipate that 2.2% of China’s gross domestic product will be directly impacted by the US tariffs. 

In the near term, the nation could experience a 1.1% GDP loss, the economists added in a note.

Yet Beijing has stuck to its ambitious goal of GDP growth around 5% this year.