31-03-2025
China Inc. Enjoys Last Moment Of Calm Before Trumpian Storm
U.S. President Donald expansion of Chinese factory activity in March could be as good as it gets for Asia's biggest economy in 2025.
All economic data are essentially ancient history upon release. Rarely is that truer than for Chinese factories bracing for the worst trade war since Deng Xiaoping's late-1970s reforms set the nation on a course that President Donald Trump is angling to stop.
It's great that China's official manufacturing purchasing managers' index improved to 50.5 in March versus 50.2 in February. A number over 50 points to expansion, and China is heading into the second quarter in the green. The non-manufacturing measure of activity in the construction and services sectors rose to 50.8 from 50.4.
This snapshot suggests that China is approaching Trump's announcement of reciprocal tariffs — on top of the 20% taxes Trump has already imposed — with a slight bit of momentum. But, arguably, not nearly enough to withstand what's about to come China's way from the Trump 2.0 gang.
Trump, let's face it, is angry. So far, China hasn't run hat-in-hand to the White House with a stack of pre-emptive concessions to avoid his wrath. Nor are the leaders of Japan and South Korea, which Trump World seemed to think would wave the white flag early and often to avoid the trade war.
And here comes Vladimir Putin to remind the globe that Trump's negotiating skills are sophomoric, at best. Weeks of Team Trump attempting to negotiate a ceasefire in Ukraine is hitting a predictable wall of Russian intractability. Trump told NBC News that he's "very angry" and "pissed off" to the point where the U.S. might impose a 50% tariff on countries buying Putin's oil.
Just about everywhere he turns, global leaders are rolling their eyes at Trump's efforts to have his way with the world economy. And that's likely to put an even bigger bullseye on China over the next nine months of 2025.
After all, Trump's most obvious path to a successful second term is a 'great bargain' trade deal with Xi Jinping's nation. Trump 1.0's trade deals were more photo opportunities than economic wins for the U.S. workers. The Phase One Trade Agreement that Trump signed with Xi did even less to alter trade dynamics than Trump's United States-Mexico-Canada Agreement (USMCA).
And Trump World seems to know it. Hence the early focus on a Group of Two trade deal that might earn Trump a place in the pantheon of economic reformers. Only, Team Xi wasn't playing along. Rather than offering a series of compromises to the U.S., China made it clear it's keen to see Trump's list of concessions.
So, Trump World went the tariffs route, hoping it would frighten Beijing into submission. Hardly. Now Trump is left flailing as China calls his bluff and America's allies look on with a mix of dismay and horror. From Canada to Mexico to Denmark, disorientation abounds. In Japan, America's top ally in Asia, there's a growing sense of betrayal over Trump's tariff policies.
In his first term, Trump had no better ally than then-Japanese Prime Minister Shinzo Abe. Now, Abe's party mate Shigeru Ishiba can barely get in to see Trump. Worse, Ishiba's hopes of winning Japan a pass on tariffs ended ignominiously with Trump's 25% tax on cars and auto parts.
Trump going after Japanese autos has long been the Liberal Democratic Party's worst nightmare. 'Japan has made significant investments and significant job-creation, which does not apply to all countries,' Ishiba said last week. 'We are the number one [country] in investment in the United States.'
It hardly matters. And if this is how Trump 2.0 treats Washington's best friends, it's not hard to guess what China might be in for. Especially with Xi's economy battling deflationary pressures at a moment when its property crisis continues to undermine consumer confidence.
China is grappling with dangerously high youth unemployment, local governments carrying crushing debt loads, a private sector having difficulty supplanting state enterprises and households predisposed to saving as opposed to consuming.
Wall Street's fears that China might be 'uninvestable' continue to stalk mainland markets. Last week, Xi held court with dozens of executives of top global firms, including Jay Y. Lee of Samsung Electronics and Stephen Schwarzman of Blackstone Inc., to boost foreign investment.
Yet many economists think that achieving this year's 5% growth target — and keeping factories humming — will require trillions of yuan of fresh stimulus as Trump's revenge tour arrives in Asia at the worst possible moment.
