Factory productivity in China decreases in May due to impact of US tariffs
China's Manufacturing Sag under US Tariffs
In a stark turn of events, China's manufacturing sector took a hit in May for the first time since September 2021, according to a private-sector survey. This downturn suggests that the escalating trade tensions between the US and China are starting to bite deeply into China's manufacturing powerhouse.
The Caixin/S&P Global manufacturing PMI slid to 48.3 in May from 50.4 in April, missing analysts' expectations and marking the first contraction in eight months. This dismal reading also represents the lowest rate in nearly three years.
The 50-mark serves as a division between expansion and contraction. As such, the current figure points to a contraction in manufacturing activity. Interestingly, this result aligns with China's official PMI released over the weekend, showing a second consecutive month of factory activity decline.
The roots of this contraction are attributed to the US tariffs, with new export orders shrinking for the second consecutive month in May and at the fastest pace since July 2023. Producers reported that these tariffs stifled global demand.
This contraction in new orders led to an overall drop, the lowest since September 2022, while factory output contracted for the first time since October 2023. Employment in the sector decreased sharply, with producers cutting workforce due to the shrinking demand.
Output prices have plummeted for six consecutive months due to intense market competition. For instance, the auto industry is grappling with an intensifying price war in China; a development that has sparked fears of a long-overdue shakeout in the world's largest car market.
Robin Xing, the Chief China Economist at Morgan Stanley, stated that these trends underscore how supply-demand imbalances continue to fuel deflation. Xing further claimed that rebalancing is likely to remain elusive.
Remarkably, export charges increased for the first time in nine months, registering the fastest growth since July 2024, as companies cited increasing logistics costs and tariffs as factors. Overall, business optimism improved in terms of future output, as they expect the trade environment to improve with market expansion.
The ongoing US-China trade war has significantly affected China's export manufacturing industry since early 2025. The Trump administration imposed sweeping tariffs, with average US tariff rates on Chinese goods reaching an unprecedented 126.5% by early May 2025[1]. This move was instigated to counter China's perceived overcapacity and export-led subsidy model.
In response, China front-loaded shipments ahead of tariff deadlines, causing exports to surge in March before returning to steady volumes in April[1]. Following these developments, China retaliated with its own rounds of counter-tariffs, escalating duties on US goods to historically high levels[1].
However, after intense negotiations, the two sides reached an agreement in May 2025 to mutually reduce tariffs by 115% while retaining a baseline 10% tariff, with China also suspending or eliminating retaliatory measures for a period[2]. These developments have brought volatility and uncertainty to China's factory activity, compelling manufacturers to adjust swiftly to changing trade policies and shifting demands.
In summary, the trade war between the US and China has caused notable fluctuations in China's export manufacturing, with early 2025 marked by surges in exports ahead of new tariffs, followed by adjustments to retaliatory measures and, most recently, temporary stability following the May 2025 agreement[1][2].
Sports and fitness industries, traditionally less reliant on exports, might still experience indirect consequences due to the diversion of factory resources from manufacturing sporting goods to other sectors, as a result of the ongoing US-China trade war. The volatile trade environment has compelled manufacturers to prioritize key sectors such as electronics, textiles, and automobiles, ultimately affecting the production and supply of sports equipment in China.
