Just as President Trump is preparing a proposal for a 25 percent tariff exacted on $200 billion more of Chinese goods, an economic release in China pointed to a sharp slowdown – the steepest pace in more than two years – in new export orders in the Caxin/Markit Purchasing Manager`s Index. This closely watched index hit an eight-monty low for July coming in at 50.8, down from 51.0 in June. The key point here is that the fall is rapid and a bit of a concern, given the talk form the White House on new tariffs of 25 percent on Chinese goods.
Exports fell for a fourth month in a row, again indicating a slowdown in external demand. The key questions are 1. Will the Chinese and US trade talks be successful and 2. will Chinese domestic demand be able to pick up the slack?
The reading was lower but note that a number above 50 indicates expansion, while a number below 50 shows contraction for this index. All eyes will be on this release in the coming months. Another release on Tuesday, showed that China’s PMI, a manufacturing gauge fell to 51.2 in July from 51.5 in June. This PMI gauge focuses on large state-owned enterprises while the Caixin and IHS Market focuses on smaller entities.
With US tariffs taking effect on 34 billion dollars of goods on July 6, talk of an additional $200 billion scheduled to be under consideration is clearly not good for President Xi. The US trade deficit with China was $375 billion in 2017, so slapping a tariff on a wide range of goods is putting China at a clear disadvantage.
We at Classiarius will be watching the Chinese economy closely as the world’s two largest economic powers square off right as China’s economy is showing signs of stress.
Team Classiarius will be producing more of these articles as well as audiovisual presentations this week and next as the economic calendar is robust.