China’s Factory Growth Falters As U.S. Tariffs Trigger Export Collapse And Job Losses
GerikSummary:
China’s manufacturing sector slowed in April 2025 as U.S. tariffs sharply cut export orders, causing job losses and weakening business sentiment, with economists warning of deeper impacts in the coming quarters....
China’s Manufacturing Momentum Slows Under Tariff Pressure
China’s manufacturing sector showed signs of renewed stress in April 2025, with the Caixin/S&P Global Manufacturing Purchasing Managers' Index (PMI) falling to 50.4 from 51.2 in March. While this reading remains marginally above the neutral 50 mark separating expansion from contraction, it is the weakest since January and confirms that escalating U.S. tariffs are beginning to disrupt factory output and confidence across the country.
This decline comes as Beijing refrains from launching new stimulus measures, opting instead to observe the trajectory of the trade conflict. The data diverges from the official government PMI, which pointed to an even faster slowdown in activity, signaling that the toll from tariffs is broadening.
Export Demand Weakens Sharply Amid Trade War Escalation
The most immediate and pronounced impact has been on new export orders, which fell at their fastest pace since July 2023. The contraction suggests a strong correlation between the latest round of U.S. tariff increases and the weakening of China's external demand.
Total new orders continued to rise, but only marginally, and the growth rate slowed noticeably. Output itself increased, but momentum faded as manufacturers focused on fulfilling prior commitments rather than securing fresh demand. This indicates that while current operations remain active, future production is at risk due to shrinking pipelines.
Business Sentiment Deteriorates As Policy Responses Lag
The softening of business optimism was another worrying sign. April’s reading on confidence dropped to its third-lowest level since the sentiment index began in 2012. Firms are trimming inventories and bracing for a prolonged period of trade uncertainty, showing that the slowdown is no longer seen as temporary.
The delayed policy response from Beijing may be contributing to this pessimism. Despite prior pledges from the Politburo to support companies and workers affected by the tariffs, concrete measures remain limited. Economists from Caixin warned that authorities need to act sooner rather than later to cushion further downside risks.
Employment Declines Resume As Firms Cut Costs
In a significant reversal from the previous month’s gains, employment in the manufacturing sector declined in April. The survey cites resignations and cost-saving restructurings as key factors behind the job cuts. With foreign trade directly or indirectly supporting 180 million Chinese jobs, as noted by former Premier Li Keqiang, even small declines in export activity can have a large ripple effect on labor markets.
Corporate downsizing and efforts to preserve margins amid falling orders show a cause-effect pattern: as export demand drops due to tariffs, revenue shortfalls lead companies to scale back labor and other operational costs.
Supply Chain Strains And Shifts In Input Costs
Trade disruptions also caused a slight lengthening of supplier lead times, while subdued input demand led to intensified price competition among vendors. This environment pushed average input costs lower in April, contributing to further deflationary pressures within upstream segments.
Despite the cost relief, weak domestic demand poses a structural constraint. The government has encouraged exporters to pivot to the domestic market, but businesses cite severe headwinds including low consumer spending, delayed payments, and high return rates. These challenges limit the effectiveness of domestic reallocation as a substitute for lost export opportunities.
Risks To Recovery Mount Amid Geopolitical Tensions
The manufacturing slowdown underscores how deeply trade frictions are affecting China's post-pandemic recovery. The structural vulnerability of China’s export-dependent growth model is being exposed, and the ripple effects—from shrinking orders to layoffs—are building systemic pressure on both firms and households.
If left unaddressed, these stress points could dampen overall economic momentum in the second and third quarters of 2025. Without timely and targeted fiscal and monetary interventions, the gap between production capacity and demand—both foreign and domestic—may widen, threatening broader recovery prospects.
Source: Reuters
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