China’s Manufacturing Slows as US Tariffs Bite and Export Orders Fall

By Staff, Agencies

China's factory activity declined in May for the first time in eight months, with new data signaling that US tariffs are beginning to significantly impact the country's manufacturing sector.

According to the Caixin/S&P Global Manufacturing PMI, the index dropped to 48.3 in May from 50.4 in April—its lowest point in 32 months and the first contraction since September 2023. A reading below 50 indicates shrinking activity.

This private survey result mirrors China’s official PMI released earlier, which also showed a second straight month of factory slowdown.

The slowdown comes as a US federal appeals court temporarily reinstated sweeping tariffs imposed by President Donald Trump, overturning a trade court’s earlier block on them. These tariffs have dampened global demand, especially for Chinese exports. US Treasury Secretary Scott Bessent acknowledged that recent trade negotiations with China have “stalled,” despite a temporary truce reached earlier.

China’s Premier Li Qiang has hinted at deploying new “unconventional” policy tools to counter economic pressures as needed. Meanwhile, the Caixin report showed export orders fell for the second consecutive month—at the fastest pace since July 2023—dragging down total new orders to their lowest since September 2022.

Factory output also shrank for the first time since October 2023, and manufacturing jobs were cut at the steepest rate this year. Manufacturers continue to struggle with falling output prices for six consecutive months due to intense domestic competition, especially in sectors like the automotive industry, where price wars threaten a market shakeout.

Robin Xing, Morgan Stanley’s Chief China Economist, highlighted ongoing supply-demand imbalances fueling deflation, suggesting the old supply-heavy growth model remains unchanged. Reflation, he added, may continue to prove difficult.

Interestingly, while overall prices dropped, export charges rose in May for the first time in nine months—marking the fastest increase since July 2024—as companies cited rising logistics and tariff-related costs.

Despite current headwinds, manufacturers expressed cautious optimism, expecting improvements in global trade and future output expansion.