Tariff War Impacts China's Economy as Retail, Industry Weaken

(MENAFN) China's economic performance in May reflected mounting pressure from intensifying trade tensions with the United States, as key indicators showed mixed results amid shifting global dynamics.

Retail spending rose by 6.4% in May compared to the same month last year, while industrial output posted a 5.8% increase, according to figures released by the National Bureau of Statistics (NBS). Over the first five months of 2025, fixed asset investments saw a 3.7% annual increase, down slightly from the 4% rise reported through April.

Industrial production growth has fluctuated throughout the year—rising 5.9% in January-February, accelerating to 7.7% in March, then decelerating to 6.1% in April before settling at 5.8% in May.

Retail activity has shown consistent improvement: it grew 4% in the first two months of the year, jumped to 5.9% in March, then increased 5.1% in April before hitting 6.4% in May.

Facing diminishing overseas demand due to ongoing tariffs, Chinese policymakers have been rolling out measures to boost domestic consumption. Consumer incentives introduced by both central and regional authorities have helped stimulate spending.

One such initiative—a trade-in scheme covering automobiles, home appliances, and electronics—generated approximately $153 billion in sales by the end of May, according to the Ministry of Commerce.

Investment in fixed assets, which encompasses spending on infrastructure, property, and equipment, registered slower growth than earlier in the year. Though the overall figure increased 3.7% year-on-year through May, this was down from the 4% rise noted in the January-April period. Infrastructure investments climbed 5.6%, while manufacturing investment advanced by 8.5%.

However, the real estate market continued its downward trajectory. Property-related investments dropped 10.7% in the first five months of 2025—declining at a faster pace than the 10.3% decrease recorded in the first four months.

Stripping out real estate, fixed asset investments rose 7.7% through May. Meanwhile, urban unemployment slightly improved, falling from 5.1% in April to 5% in May.

These economic shifts have unfolded against the backdrop of a prolonged tariff battle between Beijing and Washington.

Tensions escalated on April 2 when U.S. President Donald Trump unveiled a sweeping set of reciprocal tariffs, targeting major trade partners including China. In response, China retaliated with its own levies, launching a series of hikes that saw tariffs peak at 145% for Chinese exports to the U.S. and 125% for American goods entering China.

In May, high-level talks between U.S. and Chinese officials in Geneva resulted in a temporary truce: a 90-day suspension of further tariffs. During this window, the U.S. reduced its tariffs on Chinese imports to 30%, while China lowered its rates on U.S. goods to 10%.

The temporary truce faced a setback on May 30, when Trump accused China of violating critical aspects of the agreement. He stated that he would speak with Chinese President Xi Jinping to seek a resolution. After a phone conversation between the two leaders earlier this month, both countries agreed to uphold the terms established in the Geneva accord.

Bilateral delegations reconvened in London on June 9–10, where they announced progress on a framework for implementation.

Subsequently, Trump stated that the U.S. would adjust its tariffs on Chinese goods to 55%, while China would maintain its reduced 10% rate. As of now, Beijing has not formally confirmed this development.

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