China's industry on the brink: Trump's tariffs are causing dramatic slumps!

China's industry on the brink: Trump's tariffs are causing dramatic slumps!

The tariffs against China introduced by Donald Trump are having a noticeable impact on the manufacturing sector in the Middle Kingdom. In May 2023, the industry experienced its worst decline since September 2022. The Caixin Purchasing Managers' Index (PMI) fell from 50.4 in April to 48.3 in May, falling below the critical 50 mark that distinguishes between growth and contraction. This decline comes at a time when analysts are already predicting a decline in demand, adding further stress to the situation. Wang Zhe, senior economist at Caixin Insight Group, expressed concern about the decline in supply and demand, which is heavily influenced by slowing foreign demand, Financial World reported.

Based solely on a survey conducted from May 12th to 21st, the results of the private survey are weaker than the official PMI values ​​collected between the 22nd and 25th of each month. Becky Liu of Standard Chartered Bank noted that the tariffs are disproportionately impacting small and medium-sized businesses. This is also reflected in the index values ​​listed above, which are below the estimates of a Bloomberg survey, which indicates a median of 50.7.

Global impact and decline in economy

The tariffs are not only a problem for Chinese exporters, but also affect the global economy. The Organization for Economic Cooperation and Development (OECD) has already lowered its forecast for global growth. Instead of 3.3 percent in 2024, growth of just 2.9 percent is now expected for this year. OECD chief economist Álvaro Santos Pereira says increasing trade uncertainties are affecting consumer and investor confidence.

In addition, the trade war between the USA and China has reached a critical point. Both countries have imposed tariffs of over 100 percent on each other's imports, making trade significantly more expensive. Analysts see an increased risk of a recession both in the US and globally. And the prospects are no better: Trump's tariffs could not only slow down exports, but ultimately also cause the economy to grow.

China's response to the tariff shock

China must therefore exercise good judgment in its economic strategy. To offset the impact of the tariff shock, Beijing could resort to domestic stimulus measures. So far, 81 percent of sales come from domestic consumption, which indicates that a reorientation in the economy is also necessary. To help small and medium-sized businesses, the government could plan subsidies and other support measures.

Experts also expect that the Chinese government's central economic conference in mid-December could outline concrete measures to boost domestic demand. Growth in 2025 will therefore depend crucially on the internal market – a task that presents both challenges and opportunities. A whole new focus on the domestic economy could help the country assert itself in an increasingly uncertain trade landscape.

Overall, it shows that the trade war is not just happening on paper; The effects are now clearly noticeable for everyone. The coming weeks and months will be crucial in seeing whether China can get the boost it needs from domestic demand as tariffs hang over exports like the sword of Damocles.

In summary, it can be said that developments in the coming months will impact many facets of the global and local economy and we here in Munich will certainly be following closely how the situation continues to unfold.