China's manufacturing sector showed a clear sign of contraction in July 2025, amid escalating trade tensions between the world's two largest economies.
The Chinese manufacturing Purchasing Managers' Index (PMI), a key indicator of manufacturing activity, fell from 49.7 in June to 49.3 in July, defying economic analysts' expectations. This marked the fourth consecutive month that the PMI has been below 50, which signifies a contraction in the sector. This downward trend suggests that the tariffs war between the U.S. and China is beginning to impact Chinese exporters.
Adding to the tension, U.S.-China relations, which had shown signs of improvement, deteriorated again last week. President Trump has pressured China to stop buying oil from Russia and Iran, a move that China is resisting due to concerns over its already fragile manufacturing sector. This geopolitical tension has caused a rise in crude oil prices.
For President Trump, who campaigned on a promise of lower energy prices, rising oil costs are a significant political liability, as they could fuel inflation. In light of this, he may be seeking a compromise on the Russian oil issue. However, he shows no signs of easing his hard-line stance on Iran, where leaders are calling for retaliation following U.S. attacks on Iranian oil facilities and the killing of Iranian generals.
