Tariff uncertainty impacts China’s economy in May

BEIJING

China’s economy started to feel the effects of tariff uncertainties last month as trade tensions with the US escalated.

The country’s retail sales rose 6.4% and industrial output 5.8% year-on-year in May, while fixed asset investments climbed 3.7% in the last five months on an annual basis, according to the National Bureau of Statistics (NBS).

Industrial production rose 5.9% in January and February, 7.7% in March and 6.1% in April.

Retail sales increased 6.4% in May after a 5.1% rise in April, following a 4% hike in January and February and 5.9% rise in March.

Beijing is prioritizing policies to stimulate domestic demand to offset the decline in external demand that came from tariffs. The central and local governments’ incentive programs for consumer products brought an increase in consumption.

China’s trade-in program for home automobiles, home appliances and electronics generated $153 billion in sales as of the end of May, according to the Ministry of Commerce.

Fixed asset investments, which include infrastructure, real estate, machinery and equipment spending, increased 3.7% on an annual basis in the first five months of the year, short of the 4% increase in the first four months.

Infrastructure investments in China rose 5.6% in January-May and manufacturing investments 8.5%.

At the same time, the ongoing decline in the real estate sector extended to May, with property investments down 10.7% in the first five months—a faster rate of decline compared to the first four months of the year, which saw a 10.3% drop.

Fixed asset investments excluding real estate climbed 7.7% in January-May, while the overall unemployment rate in cities fell from 5.1% in April to 5% at the end of May.

Against the backdrop of these developments is the tariff dispute between China and the US.

US President Donald Trump announced sweeping reciprocal tariffs on April 2, which also targeted the US’s large trade partners like China.

China retaliated against the tariffs, and the back-and-forth tariff hikes between Washington and Beijing led to tariffs of 145% on China and 125% on the US in the end, until American and Chinese officials met in Geneva in May to negotiate, leading to a 90-day tariff pause.

For the following 90 days, the US agreed to reduce its tariffs on China from 145% to 30% and China from 125% to 10%.

On May 30, however, Trump accused China of violating most of the agreement and said he would hold discussions with Chinese President Xi Jinping for a resolution. Early this month, the two leaders had a phone call, during which the two sides agreed to continue the agreement they had reached in Geneva.

Delegations from the two countries met in London in June 9-10 for another round of negotiations and announced that a framework for measures to be implemented was reached.

Trump announced next that US tariffs on China will be at 55% and China would only impose 10% on the US, though the Chinese side has yet to confirm this.