China's manufacturing sector shrank at its fastest pace in nearly a year and a half in April, as escalating U.S. trade tariffs disrupted exports and added fresh pressure to Beijing's already strained economy. The official manufacturing Purchasing Managers' Index fell to 49.0 last month, its lowest reading since December 2023, according to data released Wednesday by the National Bureau of Statistics.
The sharp decline comes as U.S. President Donald Trump's trade measures-highlighted by a 145% blanket tariff on Chinese imports-took full effect in April. Sub-indexes tracking new orders, production, and raw material costs all weakened significantly. A parallel gauge of export orders fell to 44.7, the weakest level since late 2022, signaling deteriorating demand for Chinese goods overseas.
Zhao Qinghe, a senior statistician at the NBS, attributed the contraction to "sharp changes in the external environment and other factors." In a government press briefing, Zhao Chenxin, vice chairman of China's National Development and Reform Commission, said Beijing has "ample policy reserves" and will "accelerate the implementation" of pro-growth measures.
U.S. tariffs-compounded by China's own retaliatory duties, now at 125%-have choked off bilateral trade. Shipping data shows a significant drop in container traffic from China to U.S. ports in recent weeks. Morgan Stanley's Chetan Ahya wrote in a note that trade flows "have been severely disrupted," leading Chinese exporters to cancel orders and cut production.
While the non-manufacturing sector, which includes construction and services, eked out growth with a PMI reading of 50.4, analysts say that is unlikely to compensate for the broad contraction in factory activity. The Caixin/S&P Global manufacturing PMI, a private gauge that leans toward smaller firms, slowed to 50.4 from 51.2 in March.
"Offsetting impact of tariffs will probably require doubling stimulus this year," said Dan Wang, China director at Eurasia Group. Wang projected a potential 2% GDP hit from the tariffs and estimated at least 2 trillion yuan in new fiscal spending would be required to offset it.
Chinese officials have rolled out modest relief measures, including expanded credit access and exemptions on select U.S. imports such as pharmaceuticals, aerospace parts, and semiconductors. But they have resisted calls for large-scale stimulus, opting instead for targeted support to exporters and impacted industries.
Despite signs of strain, Chinese leaders insist their annual growth target of "around 5%" remains achievable. The economy expanded 5.4% in the first quarter, buoyed by exporters front-loading shipments ahead of tariff implementation.
The White House has issued exemptions for certain electronics and auto parts, but has not rolled back the broader 145% tariff regime. "China probably will eat those tariffs," Trump told ABC News. "At 145, they basically can't do much business with the United States."
Chinese Foreign Minister Wang Yi has rejected any prospects of a negotiated truce, saying in Rio de Janeiro this week that appeasement "will only embolden the bully." He echoed a state video released by his ministry that warned the world against "kneeling to economic coercion."
Nomura estimates suggest 9 million Chinese manufacturing jobs are directly exposed to the U.S. tariffs. Meanwhile, employment indices in the latest PMI reports showed job losses across the board, with only the services sector seeing a slight uptick, though still in contraction at 46.8.
