China: May PMIs reminder of high tariffs – ABN AMRO

Trade war escalation still visible in Caixin’s manufacturing PMI. It's a reminder of much higher US import tariffs despite Geneva-truce. Official composite PMI picks up slightly, ABN AMRO's economist Arjen van Dijkhuizen reports

Trade war escalation still visible in Caixin’s manufacturing PMI

"China’s May PMIs published over the past few days show that the escalation of the trade war with the US during April is still having an effect on activity and sentiment, despite the truce reached in Geneva on 12 May. To start on the manufacturing side: this morning Caixin’s manufacturing PMI came in much weaker than expected at 48.3 (April: 50.4, consensus: 50.7), the weakest reading since September 2022. By contrast, the official manufacturing PMI published by NBS last Saturday showed an improvement, in line with expectations, climbing to 49.5 (April: 49.0, consensus: 49.5), although staying below the neutral 50 mark separating expansion from contraction. Hence, the divergence between the two manufacturing indices rose again."

"Meanwhile, the official non-manufacturing PMI covering services and construction sectors (published last Saturday as well) edged down marginally, to 50.3 (April: 50.4, consensus: 50.5), remaining at relatively low levels just above the neutral 50 mark. The services sub-index picked up a bit to 50.2 (April: 50.1), while the construction sub-index dropped further to a four-month low of 51.0 (March: 51.9). All in all, the official composite PMI (a weighted average of the output components for manufacturing and non-manufacturing) picked up a bit, to 50.4 (April: 50.2). Caixin’s services and composite PMIs for April will be published on the 5th of June."

"While the Geneva truce has softened the direct export shock to the US, and trade circumvention and export diversification also continue to mitigate China’s overall export shock – as shown by China's April export data – , the latest PMI data are a reminder that US import tariffs on China are currently around four times higher than they were before the start of the 2nd Trump administration, at around 40% vs 10% previously. Moreover, recent communication between the US and China shows that trade tensions have not disappeared, and uncertainty remains high. Allegedly, the US is looking for opportunities to organise a call between presidents Trump and Xi soon."