Trump's Tariffs Push China's Factory Activity to Worst Contraction since Late 2023

China's factory activity recorded its worst contraction since December 2023, revealing the damage the trade war with the United States has inflicted on the world's second-largest economy.

The National Bureau of Statistics said Wednesday that the official Purchasing Managers' Index (PMI) for the manufacturing sector fell to 49.0 in March, down from 50.5 in March. This was below the median forecast of 49.7, according to economists. A reading below 50.0 indicates a contraction.

The non-manufacturing PMI, which measures activity in the construction and services sectors, fell to 50.4 from 50.8 last month. This was below expectations of 50.6.

China's CSI 300 index of mainland-listed shares saw little change.

The PMI readings provide the latest official view of the state of the Chinese economy after the Trump administration imposed a 145% tariff on Chinese goods, a figure expected to hurt a sector that contributed to about a third of the economy's growth last year. Zhao Qinghe, a senior statistician at the National Bureau of Statistics, noted that the decline was due to a high base the previous month and "rapid changes in the external environment."

In a statement accompanying the release of the figures, Zhao reiterated the government's position that trade wars are zero-sum, pointing to a slowdown in industrial activity in major economies including the United States, the United Kingdom, and Japan.

In an early sign of trouble for Chinese exporters, cargo shipments collapsed, according to one estimate, by as much as 60%.

Economists at banks including UBS Group and Goldman Sachs have cut their forecasts for China's 2025 growth to around 4% or less in recent weeks.

The Caixin Manufacturing Purchasing Managers' Index for April came in at 50.4, higher than the forecast of 49.7. These figures indicate growth compared to the previous month, albeit at a slower pace. This particular indicator often reflects the activity of smaller, more export-oriented companies.

"The US tariff increases have weighed on external demand, with new export orders falling at the fastest pace since July 2023, leading to only a marginal increase in total new orders in April," said Wang Zhe, chief economist at Caixin Insight Group.

To help ease the pressure on exporters, Beijing this week announced plans to help struggling companies access loans and boost domestic consumption, but it stopped short of announcing bolder economic stimulus. Instead, officials are focusing on implementing the stimulus package passed in early March.

Beijing also appears in no hurry to negotiate with Washington. Foreign Minister Wang Yi warned countries against succumbing to US tariff threats, saying that appeasement would only encourage the "bully."