Factories in China see a decline due to escalating tariffs casting a shadow over international trade.
Dive into the latest turbulence in China's manufacturing sector, as it grapples with a contracting economy due to the ongoing trade tussle between the U.S. and China.
The Manufacturing Purchasing Managers' Index (PMI) plummeted to a 16-month low of 49 for April, dropping from 50.5 in March and 0.6 percentage points below the forecasted 49.6. This sullen figure points to a contracting state in the manufacturing sector, a stark contrast to the expansionary readings above 50.
Zhao Qinghe, senior statistician at the National Bureau of Statistics, shed some light on the issue, attributing the contraction to rapid growth in the sector previously, causing a higher base, and abrupt environmental changes, possibly the trade war escalation.
Zhang Zhiwei, President and Chief Economist at Pinpoint Asset Management, confirmed the link between the trade war and the factory contraction,“The trade war is driving the weak manufacturing PMI figure in April,” he says.
Zhiwei further adds that the trade war uncertainty will intensify in the second quarter, dampening both Chinese and American economies. The worsening trade policy uncertainties will delay business decisions and put global supply chains under significant stress, potentially leading to disruptions.
Beyond these immediate issues, the extended trade war effects are far-reaching. U.S. tariffs on Chinese goods as high as 145% have crippled China's exports to the U.S., even causing U.S. retailers to curb shipments from China to dodge swollen costs[1]. This decline in shipments, projected to drop by 35% in the coming weeks[1], affects Chinese manufacturers reliant on U.S. demand, particularly those in consumer goods sectors.
Manufacturers are under pressure to relocate production lines to bypass U.S. tariffs, but this strategy faces hurdles due to stricter U.S. rules of origin and increased scrutiny of Chinese overseas investments[2]. Furthermore, battery and green energy manufacturers run the risk of technology leaks if forced to relocate production[2].
On the flip side, this factory contraction may lead to long-term structural shifts, as manufacturers renegotiate technology transfer risks and higher operational costs associated with offshoring supply chains[2]. The ongoing trade war seems to be putting significant pressure on the competitiveness of China’s manufacturing output, particularly in tariff-sensitive industries.
- The ongoing trade tussle between the U.S. and China is causing weakening in the manufacturing industry, as indicated by the recent 16-month low PMI of 49.
- Zhao Qinghe, a senior statistician, attributed the contraction to a higher base due to rapid growth and abrupt environmental changes, possibly the trade war escalation.
- Zhang Zhiwei, a prominent economist, confirmed the trade war as the driving force behind the weak manufacturing PMI figure in April, forecasting the uncertainty to intensify in the second quarter, affecting both Chinese and American economies.
- The trade war is predicted to cause disruptions in global supply chains due to delayed business decisions, potentially leading to shipment reductions from China, especially in the consumer goods sectors.
- The extended effects of the trade war are far-reaching, with U.S. tariffs on Chinese goods crippling exports and putting pressure on manufacturers to relocate production lines, a task hindered by stricter U.S. rules of origin and increased scrutiny of Chinese overseas investments.
- While the trade war poses challenges, it may also lead to long-term structural shifts as manufacturers renegotiate technology transfer risks and higher operational costs associated with offshoring supply chains, putting significant pressure on the competitiveness of China’s manufacturing output in tariff-sensitive industries.
[1] Source: General news report[2] Source: War-and-politics news report
