China's Manufacturing Activity Crashes To 2022 Lows In May Amid Trump Tariff Woes

The manufacturing sector in China has slipped into contraction in May, marking its lowest level since September 2022, as the impact of tariffs continues to weigh heavily on the industry despite a temporary trade truce with the U.S.

What Happened: Data released on Tuesday by Caixin Media Co. and S&P Global revealed that the Caixin manufacturing purchasing managers index dropped to 48.3 in May from 50.4 in April. For the first time in eight months, the index has dipped below 50, the threshold that distinguishes expansion from contraction, reported the Wall Street Journal.

The drop was primarily due to a significant decrease in new orders, which fell at the fastest rate in over two and a half years, as reported by Caixin. New export orders fell for the second month in a row, hitting their lowest level since July 2023.

Despite a temporary truce in the U.S.-China trade conflict in mid-May, the tariff fallout appears to have continued to impact China’s factory activity. Zichun Huang, an economist at Capital Economics, stated, “The PMIs suggest that last month's U.S.-China trade truce was not enough to prevent a broader loss of economic momentum in May.”

Employment in manufacturing shrank more quickly in May, reflecting hiring caution, but business optimism rose as companies anticipated improvements in external markets.

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Why It Matters: The ongoing trade tensions between the U.S. and China, which escalated in April with the imposition of hefty tariffs, have continued to impact China’s factory activity. Although the two countries reached a temporary truce in May and agreed to suspend most of the additional tariffs, the effects of the tariffs persist.

Amid these challenges, Chinese manufacturers are also facing domestic economic pressures, with major macroeconomic indicators showing a significant weakening at the start of the second quarter. This has led to a cautious approach by manufacturers, with employment shrinking at a faster pace than in April.

These developments align with previous warnings from analysts at Goldman Sachs, who cautioned that persistently high U.S.-China tariffs and a significant drop in Chinese exports could put up to 16 million jobs in China at risk, particularly in the manufacturing sector.

Meanwhile, in the U.S., the ISM Manufacturing PMI slipped to 48.5% in May from 48.7% in April, indicating the sharpest contraction since late 2024. One of the respondents stated, "…the impact of ever-changing trade policies of the current administration has wreaked havoc on suppliers’ ability to react and remain profitable."

Xpeng Inc – ADR XPEV and BYD BYDDF fell 3.4% and 0.65%, each, over the past month. Meanwhile, Aluminum Corporation of China Limited ALMMF surged 7.41% during the same period.

In Tuesday’s premarket session, PDD Holdings Inc. PDD and Alibaba Group Holding Ltd. BABA traded higher, while JD.com Inc. JD edged slightly lower, according to Benzinga Pro data.

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