China export slump deepens trade tensions

[WORLD] China’s export sector is experiencing a significant downturn as new orders sharply decline, attributed to escalating U.S. tariffs under President Donald Trump’s trade policies. In April 2025, the Caixin/S&P Global manufacturing Purchasing Managers’ Index (PMI) dropped to 50.4 from 51.2 in March, indicating near-stagnation and marking its weakest level since January. The contraction in export orders was the steepest since July 2023, signaling mounting challenges for China’s economy. ​

In response to the renewed trade conflict, Chinese officials have accused Washington of weaponizing economic policy, warning that the tariffs violate World Trade Organization rules. Beijing has threatened retaliatory measures, including counter-tariffs on American agricultural goods and high-tech imports, further escalating tensions between the world’s two largest economies. These threats have sparked concerns among multinational firms operating in both markets, with several companies re-evaluating their supply chain strategies.

Economic Impact and Trade Dynamics

The Port of Los Angeles, a critical gateway for U.S.-China trade, is anticipating a 35% drop in shipments from China by next week due to the recent tariff increases. With Chinese shipments comprising 45% of the port's business, the impact is substantial. The port anticipates one-fourth of its scheduled ship arrivals in May to be canceled. Retailers are facing inventory shortages, with major chains like Amazon, Walmart, and Target reporting limited stock that could run out in 5–7 weeks. Economists warn that sustained declines in imports may lead to job losses in transportation and retail, falling inventories, and a potential summer recession. ​

Industry groups representing U.S. manufacturers and importers have urged the Biden administration to intervene diplomatically to avoid further economic fallout. The National Retail Federation warned that prolonged disruptions could drive inflationary pressures and erode consumer confidence during the crucial back-to-school and holiday shopping seasons. Meanwhile, logistics providers have begun rerouting some shipments through alternative Asian markets like Vietnam and India, though these transitions remain costly and complex.

In China, the manufacturing sector is grappling with reduced business confidence and a decline in new export orders. The government's efforts to stimulate domestic demand face challenges due to weak local consumption and logistical issues. Analysts predict that the trade tensions could slash China's GDP growth by two percentage points, with exports potentially declining by about 8% over the following year. ​

Adding to Beijing’s concerns is a growing exodus of foreign investment. Recent figures from the Ministry of Commerce show a 12% year-over-year drop in foreign direct investment in the first quarter of 2025, as multinational firms look to diversify away from Chinese production. Several key players in electronics and apparel manufacturing have announced plans to shift operations to Southeast Asia in anticipation of prolonged instability.

Global Supply Chain Disruptions

The ripple effects of the trade war are being felt globally. The Washington Post highlights that tariffs are already damaging the supply chain, with cargo arrivals declining and predictions of a 35% drop within two weeks. Export bookings are falling faster than imports, and major retailers are reporting limited inventory that could run out in 6–8 weeks. These disruptions threaten jobs in shipping, trucking, and retail, causing supply shortages and price hikes for consumers. ​

European and Japanese automakers, heavily reliant on components sourced from Chinese factories, have also begun sounding alarms. Several manufacturers have reported delayed production schedules due to component shortages, with some plants considering temporary shutdowns. Analysts warn that the spillover from U.S.-China trade friction could destabilize broader sectors of the global economy, particularly as other major trading partners get caught in the fallout.

Market Reactions and Economic Forecasts

Financial markets are responding to the escalating trade tensions. The iShares China Large-Cap ETF (FXI) is currently trading at $33.80, reflecting a decrease of 0.00544% from the previous close. Similarly, the iShares MSCI China ETF (MCHI) is at $51.68, down 0.338%. These declines indicate investor concerns over the prolonged trade dispute and its impact on China's economic stability.​

The ongoing trade war between the U.S. and China is exerting significant pressure on China's export sector, with declining orders, reduced business confidence, and potential GDP growth impacts. Global supply chains are also experiencing disruptions, leading to inventory shortages and economic uncertainties. As both nations navigate this complex economic landscape, the future of international trade remains uncertain, with potential repercussions for global economic stability.​