While Trump’s tariffs aren’t yet in full effect, they may already be slowing China’s economy down considerably. This could force China to either embark on yet another round of stimulus, or to come to the table and negotiate with the United States. So far, China has taken a hard line in negotiations but they may not be able to hold out much longer if the economy continues to slip.
Business sentiment has dropped sharply, with the manufacturing sentiment index falling to 50.2, down from 50.8. Should the sentiment fall below 50, it would suggest a contraction. Meanwhile, the non-manufacturing sentiment index dropped a full point to 53.9, a still healthy reading but a large drop nonetheless.
Exports have been the hardest hit. China has seen export orders drop for five straight months. In October, the manufacturing export sentiment index dropped from 48 to 46.9, suggesting that the sector is suffering a severe contraction. Service exports are also contracting,
The sentiment index readings are the first since the Trump administration levied another round of 10 percent tariffs on billions worth of Chinese goods in late September. The readings suggest that China’s economy could already be feeling the pinch of Trump’s tariffs, although it’s possible that other economic factors are causing the decline.
Worse yet, the declining sentiments indexes may not even be showing the full brunt of the pain China’s economy is currently suffering. Manufacturing companies appear to be front-loading orders now in anticipation of both steeper sanctions in the future and the start of the new year.
Come January, Chinese manufacturers could be sitting on a glut of already produced goods. As a result, analysts expect manufacturing employment to decline sharply at the start of the new year. Rising unemployment could upset social harmony, pressuring China’s government even further.
At the same time, tariffs are set to increase sharply, to 25 percent, come January. This would almost certainly slow China’s economy down even further. So far, however, China has shown little willingness to negotiate.
Though, the United States is suffering as well. Weak exports so far this year has weighed down the GDP by as much as 1.78 percentage points. It’s possible that Trump’s policies are at least partially to blame.