Tariff Pause Brings Modest Lift to Chinese Manufacturing, But Weakness Persists
GerikSummary:
China’s factory activity edged up in June as the U.S. delayed higher tariffs, offering a short-term reprieve. However, the sector remained in contraction...
Short-Term Rebound Fails to Lift Broader Outlook
China’s factory output showed a slight improvement in June following U.S. President Donald Trump’s decision to delay a new round of tariffs for 90 days. The latest Purchasing Managers’ Index (PMI), released by China’s National Bureau of Statistics, rose marginally from 49.5 in May to 49.7 — still below the neutral 50-point threshold, signaling that overall manufacturing remains in contraction.
The delay, agreed upon in early May, temporarily halted the imposition of more aggressive tariffs on Chinese goods. This gave manufacturers an incentive to expedite production and shipping during the tariff reprieve, creating a modest uptick in activity. However, this rebound has largely benefitted large industrial firms, while small and mid-sized enterprises continue to face contraction, weakening hiring and export momentum.
Limited Gains Amid Global Supply Chain Tensions
Despite the uptick, new export orders remain in decline and below the expansion threshold, reflecting tepid global demand and persistent uncertainty over long-term trade relationships. The manufacturing boost was not enough to change broader sentiment, with hiring activity slipping further.
This trend reflects a wider regional pattern. Japan’s industrial output rose by just 0.5% in May, far below the forecasted 3.5% rise, indicating that Japanese manufacturers are not capturing lost Chinese demand due to the tariff regime. Similarly, South Korea reported a 2.9% decline in all-industry output in May compared to the same period last year. Semiconductor and vehicle production — key exports — fell 2% and 2.3%, respectively, signaling broad weakness in regional supply chains.
Countdown to Tariff Resumption Intensifies Risks
The modest reprieve may be short-lived. President Trump reiterated over the weekend that the 90-day tariff pause — due to expire for most countries on July 9 and for China in early August — will not be extended. He emphasized the U.S. would begin notifying trading partners that higher tariffs will resume unless satisfactory agreements are reached.
While a rare earth export deal was reached with Beijing, fundamental issues remain unresolved. Trump maintained that tariffs will remain central to forcing a "fairer" trade balance, citing the large U.S. trade deficit with China as justification. Despite stating that getting along with China is beneficial, he confirmed that higher duties remain on the table.
Manufacturing Gasp Highlights Fragility
The uptick in Chinese PMI data reveals how sensitive factory activity is to short-term policy shifts. However, the persistence of sub-50 readings highlights structural challenges that remain unsolved — including weakening global demand, export volatility, and domestic sectoral imbalances. As the deadline for tariff reinstatement approaches, the uncertainty is likely to weigh further on Asia's manufacturing sector, especially in the absence of substantive trade breakthroughs.
The fragile rebound, buoyed only by temporary policy pauses, may fade as geopolitical tensions and protectionist rhetoric once again rise to the surface.
Source: AP
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