China’s manufacturing sector reported its sharpest contraction in 16 months in April.

The manufacturing Purchasing Managers’ Index (PMI) fell to 49.0, the lowest level since December 2023, according to data from the National Bureau of Statistics (NBS).

A PMI reading below 50 indicates a contraction, highlighting the difficulties facing China’s export-reliant economy.

Zhao Qinghe, a senior statistician at the NBS, attributed the decline to “sharp changes in the external environment and other factors.”

This contraction coincides with the impact of the 145% tariffs imposed on Chinese goods, leading to canceled orders and reduced production.

🔗 Source: CNN

🧠 Food for thought

1️⃣ China faces worst manufacturing slowdown since COVID amid high tariff levels

The April PMI reading of 49.0 represents China’s sharpest manufacturing contraction in 16 months, occurring as U.S. tariffs remain elevated at 145% 1.

This decline is significantly more severe than previous trade tensions, with new export orders plummeting to 44.7, levels not seen since the COVID-19 pandemic disruptions of 2022 2.

The manufacturing decline is particularly significant because it comes despite China’s manufacturing sector having already weathered multiple challenges, including previous tariff rounds where rates were substantially lower.

McKinsey’s analysis indicates these tariffs have directly raised costs for Chinese manufacturers, forcing many to halt U.S.-bound production entirely as the economics no longer work 1.

The scope of impact is substantial, affecting approximately $330 billion worth of trade flows according to Tax Foundation estimates, explaining why Chinese officials describe this as a “sharp change in the external environment” 3.

2️⃣ Beijing’s measured economic response follows historical patterns despite significant pressure

China’s current “modest measures” approach to economic stimulus mirrors its response to previous economic challenges, despite facing potentially larger GDP impacts of between 0.7% (J.P. Morgan estimate) and 2.4% (CSIS estimate) 4, 5.

During the 2018-2019 trade tensions, China similarly avoided “flooding” the economy with stimulus, instead focusing on targeted measures to protect strategic industries while accepting some short-term pain.