China’s industrial engine is stalling under the weight of escalating trade tensions with the United States, as factory production across the country fell sharply in April. Official data shows that manufacturing activity slipped to its lowest level in nearly two years, signaling a troubling slowdown for the world’s second-largest economy. The drop is being blamed on a sharp reduction in U.S. orders, widespread factory shutdowns, and rising pressure from tariffs imposed by the Trump administration.
Manufacturing Index Slips Into Contraction
The official manufacturing purchasing managers’ index (PMI), published by the National Bureau of Statistics, dropped to 49.0 in April. A reading below 50 indicates that activity in the sector is shrinking. This is the lowest reading since May 2023 and marks the first time the index has fallen below the 50 threshold since January. Analysts had expected a smaller drop, estimating a PMI of 49.8.
The report pointed to a broad-based slowdown. Sub-indexes for production and new orders declined to 49.8 and 49.2, showing clear signs of weakening demand. Measures for raw material costs and output prices also slid to 47.0 and 44.8, respectively.
Zhao Qinghe, a senior statistician at the National Bureau of Statistics, said in a statement that the fall in factory activity was caused by “drastic changes in the external environment.” Zhao added that China would coordinate its domestic economic strategy with international trade policy and would “focus on employment, support businesses, and stabilize the market.”
U.S. Tariffs Trigger a Slowdown in Orders
The steep drop in activity comes after U.S. President Donald Trump imposed a new wave of tariffs on Chinese goods in April. The total rate on many Chinese products has now risen to 145 percent, with some items facing duties as high as 245 percent. In response, China slapped 125 percent tariffs on American imports.
The sharp increase in trade barriers has disrupted supply chains and triggered a wave of production cuts across China. According to Morgan Stanley, “Trade flows between the two countries have been severely disrupted,” with container ship traffic from China to the United States falling sharply in recent weeks. The result has been a significant year-over-year decline in exports to the U.S., which had accounted for about 15 percent of all Chinese exports last year.
At factories in manufacturing hubs like Guangdong, Zhejiang, and Fujian, the effects are already visible. A plastics factory worker in Fujian told reporters, “Our export orders disappeared, so we’ve temporarily stopped.” A toy factory employee in Zhejiang added, “It’s not easy at the moment,” after his employer granted a two-week leave due to a lack of work.
Dongguan-based DeHong Electrical Products gave workers a month off with only minimum wage, citing “significant near-term pressure” from the loss of American clients. A notice from the company confirmed that several U.S. buyers had canceled orders entirely.
Millions of Jobs at Risk
The economic impact could be substantial. Analysts at Nomura estimate that about 2.2 percent of China’s gross domestic product will be directly affected by the U.S. tariffs, with approximately 9 million jobs in the manufacturing sector at risk. Han Dongfang, founder of the China Labour Bulletin, warned that “the rearrangement of China’s manufacturing sector will be a long-term process, and workers will be sacrificed.”
In Hangzhou, Stellarmed, a company that manufactures endoscopy kits for the U.S. medical market, informed workers to spend the rest of April looking for new jobs. “We’re not sure we can stay in business,” a company representative said. At Ningbo Taiyun Electric, production was halted in mid-April. Although the factory has resumed some operations for European clients, a manager admitted, “We’re trying to get more orders from Europe. Hopefully, the U.S. will change its policies.”
Government Response and Stimulus Efforts
Chinese cities such as Shenzhen and Dongguan have begun issuing local support packages for manufacturers, hoping to ease the damage caused by broken supply chains. National officials have also pledged to roll out more active fiscal and monetary policies. According to Dan Wang, China director at Eurasia Group, “Offsetting the impact of tariffs will probably require doubling stimulus this year.” Wang estimates that China will need to inject at least 2 trillion yuan in government spending to counter the estimated 2 percent loss in GDP.
Despite these moves, some analysts doubt the government can fully absorb the impact. Zichun Huang, China economist at Capital Economics, noted, “The sharp drop in the PMIs likely overstates the impact of tariffs due to negative sentiment effects, but it still suggests that China’s economy is coming under pressure as external demand cools.”
While Beijing has expressed confidence that it can achieve its target of 5 percent GDP growth this year, many investment banks have already slashed their forecasts. Huang expects the economy to grow by just 3.5 percent in 2025.
Trump Administration Defends Tariff Strategy
President Trump has remained firm in his approach, insisting that China must be held accountable for what he calls decades of unfair trade practices. In a recent interview with ABC News, Trump said China was “ripping us off like nobody’s ever ripped us off.” He added that he believed China “probably will eat those tariffs,” downplaying concerns about the damage the tariffs are doing to both economies.
However, the impact is spreading. UPS announced it would lay off 20,000 employees and close 73 facilities, citing the ripple effects of Trump’s tariffs. General Motors also lowered its earnings outlook for the year, and U.S. consumer confidence has dropped to its lowest level in five years.
Despite the tensions, both countries have quietly made small adjustments to soften the blow. China recently granted exemptions on tariffs for certain U.S. imports, such as pharmaceuticals, aerospace parts, and semiconductors. Trump, in turn, signed an executive order excluding foreign car and parts imports from additional levies and rolled back tariffs on electronic products like smartphones and computers.
No End in Sight for Trade Standoff
While there have been hints of behind-the-scenes efforts to ease trade tensions, both sides remain publicly defiant. Beijing continues to insist that no formal negotiations are taking place, and Chinese state media have released messages accusing the U.S. of bullying. The foreign ministry recently declared that China will not “cave to a bully.”
With exports down, production slowing, and unemployment rising in factory towns, the consequences of the trade war are becoming harder to ignore. China is now focusing on reducing its reliance on U.S. markets and is pouring billions into domestic energy production and alternative export markets.
Still, as President Trump continues to ramp up pressure, and China refuses to yield, the future of global trade remains uncertain. For now, factories across China are scaling back, workers are being sent home, and the nation’s economic momentum is showing signs of slipping.
ACZ Editor: Can China sustain this level of fall? Perhaps they can, since a totalitarian government like Xi and the Chinese Communist Party are perfectly willing to let the Chinese people suffer to further their aims. But if this goes on too long, Xi will have to deal with unrest in the people, and then, of course, his enemies will show themselves. Tough to say.
