Chinese factory activity improves slightly with delay on tariffs, but still lags

Key Points

• Chinese factory PMI rose to 49.7 in June from 49.5 but remains below the 50-mark for expansion, indicating continued contraction despite slight improvement.
• The 90-day tariff pause spurred a rebound among large manufacturers, but small and mid-size firms saw output and hiring continue to decline, and new export orders stayed below the expansion threshold.
• Manufacturing trends in the region remain muted, with Japan’s industrial output up just 0.5% in May against forecasts of 3.5%, while South Korea’s total output fell 2.9% year-on-year.
• President Trump said he will not extend the tariff delay beyond July 9, signaling that countries must forge deals or face penalties, though key U.S.-China trade issues remain unresolved.

BANGKOK (AP) — Chinese factory activity improved somewhat in June after President Donald Trump agreed to delay imposing higher tariffs on imports from China for 90 days, but overall activity was still contracting, according to a survey released Monday.

The purchasing managers index, which reflects new orders and other measures, rose to 49.7 from 49.5 in May, the National Bureau of Statistics reported. That’s on a scale of 0 to 100 where 50 and above shows expansion.

Other reports showed similar trends in Japan and Korea.

Trump has said he’s not planning to extend the 90-day pause on tariffs on most nations beyond July 9. The delay for imposing much higher tariffs on China, agreed to in early May, expires about a month later.

The hiatus for tariffs brought a revival of manufacturing activity as companies and individuals rushed to take advantage of lower import duties. But that mainly helped large manufacturers, with small and mid-size companies' output still contracting. Hiring also fell.

New export orders and exports also remained below the 50-level that marks expansion.

In Japan, manufacturing output edged 0.5% higher in May, well below analysts' estimates for a 3.5% increase.

“The subdued rise in industrial production in May means that firms were not benefitting from sky-high U.S. tariffs on Chinese imports, and their production forecasts point to continued weakness,” Marcel Thieliant of Capital Economics said in a report.

South Korea's government reported that its “all industry” measure of output fell 2.9% from a year earlier in May, with production of computer chips falling 2%. Production of vehicles fell 2.3% year-on-year, after falling 4.1% in April.

In an interview with Fox News Channel's “Sunday Morning Futures,” Trump said he’s not planning to extend a 90-day pause on tariffs on most nations beyond July 9. The delay for imposing much higher tariffs on China, agreed to in early May, expires about a month later.

Trump said his administration will notify countries that the trade penalties will take effect unless there are deals with the United States. He had played down the deadline at a White House news conference Friday by noting how difficult it would be to work out separate deals with each nation. The administration had set a goal of reaching 90 trade deals in 90 days.

Despite a recent trade deal with Beijing over rare earth exports from China, establishing a fairer relationship will require significant tariffs.

Details of the latest agreement to deescalate trade tensions are scarce and major issues between the world’s two biggest economies remain unresolved.

“I think getting along well with China is a very good thing,” Trump said. “China’s going to be paying a lot of tariffs, but we have a big (trade) deficit, they understand that.”