Pressure grows on Asia's factories as US-China tariff escalation bites

An employee works on the production line of a tyre factory under Tianjin Wanda Tyre Group, which exports its products to countries such as US and Japan, in Xingtai, Hebei province, China, on May 21, 2019.
An employee works on the production line of a tyre factory under Tianjin Wanda Tyre Group, which exports its products to countries such as US and Japan, in Xingtai, Hebei province, China, on May 21, 2019. PHOTO: REUTERS

HONG KONG/SINGAPORE (BLOOMBERG) - Manufacturing sentiment across Asia remained in the doldrums in August as the escalating United States-China trade war continues to hammer sentiment.

Purchasing manager indexes for Japan, South Korea and Taiwan remained in negative territory.

Japan's Jibun Bank and IHS Markit PMI fell to 49.3 from 49.4 in July, the eighth consecutive month of contraction. The IHS Markit PMI for Taiwan fell to 47.9 from 48.1 in July.

While South Korea's IHS Markit PMI rose to 49 from 47.3 in July, it is still showing a contraction. Readings below 50 signal a shrinking of factory activity.

The three manufacturing nations have been among the most exposed to trade tensions, a cooling technology boom and slowing demand in line with a weaker global economy.

China's Caixin Media and IHS Markit PMI rose to 50.4 from 49.9 in July, indicating a renewed expansion and its highest level since March. Yet the nation's official manufacturing PMI dropped to 49.5, according to data released last Saturday by the National Bureau of Statistics, with sub-gauges showing that domestic and new overseas orders contracted.

It was a soft picture across South-east Asia, with Indonesia slipping further into contraction - to its lowest since July 2017 - and the Philippines, Thailand, and Myanmar all expanding more slowly.

PMIs for Malaysia and Vietnam - the weakest and strongest performers in the region - are due on Tuesday.

 

Developments in US-China trade relations remain the dominant driver of sentiment. On Sunday, higher US tariffs on roughly US$110 billion (S$150 billion) in Chinese imports took effect, as did Beijing's retaliatory duties on US goods.

"High uncertainty over US - China trade policies, Brexit and other political and geopolitical developments continue to weigh on the global outlook," economists at Barclays wrote in a note.

"The news flow leaves room for hope on potential US-China or Brexit deals, but the development pattern so far makes us sceptical about any sudden solutions."