Trade tensions weigh on Asia's export-reliant economies

Workers on an SUV production line on the BAIC (Beijing Automotive Group Co.) in Beijing, on Aug 29, 2018.
Workers on an SUV production line on the BAIC (Beijing Automotive Group Co.) in Beijing, on Aug 29, 2018. PHOTO: AFP

TOKYO • Manufacturing activity in major Asian economies took a hit from weak export orders last month, a sign firms are starting to feel the pinch from intensifying trade friction between the US and China that many fear could derail global growth.

Surveys of purchasing managers released yesterday showed persistent pressure on key exporting destinations China, Japan and South Korea.

In China, its vast manufacturing sector grew at the slowest pace in more than a year last month, with export orders shrinking for a fifth month.

Export orders also shrank in Japan and South Korea, suggesting that increasing protectionism and concerns of slower Chinese demand are weighing on Asia's export-reliant economies.

Separate data showed Japanese corporate capital expenditure jumped in the second quarter by the most since 2006, though some analysts warn that global trade tensions may cloud the outlook.

"The tit-for-tat tariff retaliation hurts China's economy far more than that of the United States. And when you look at Asia's economic prospects, much depends on whether China could avoid a sharp slowdown in growth," said chief economist Yoshiki Shinke at Dai-ichi Life Research Institute in Japan.

US President Donald Trump's relentless "America First" trade push has hurt confidence in many countries and hammered Asian stocks, as investors fret about the hit to global supply chains. The fear is that the escalating tariff conflict will freeze business investment and trade in a blow to global growth.

US President Donald Trump's relentless "America First" trade push has hurt confidence in many countries and hammered Asian stocks, as investors fret about the hit to global supply chains. The fear is that the escalating tariff conflict will freeze business investment and trade in a blow to global growth.

Mr Trump has said he is ready to implement new tariffs as soon as a public comment period on the plan ends on Thursday, which would be a major escalation after Washington already applied tariffs on US$50 billion (S$68.6 billion) of exports from China.

In Germany, industrial orders figures for July are expected to show only a small rise, after falling by the most in nearly 11/2 years in June.

While the US economy remains on a solid footing thanks to huge tax cuts by Mr Trump, some analysts say growth has now peaked.

Mr Trump also said China devalued its currency in response to a recent slowdown in economic growth.

A Reuters poll last month forecast that growth in the world's biggest economy will slow steadily in the coming quarters, with analysts expecting Mr Trump's trade war to inflict damage. Another poll showed a similarly cautious outlook for euro zone growth over the remainder of this year and next.

China's Caixin/Markit Manufacturing Purchasing Managers' Index (PMI) fell to 50.6 last month from July's 50.8, matching forecasts. In South Korea, factory activity contracted for a sixth consecutive month last month as export orders shrank for the first time in three months, a PMI survey showed.

While Japan's manufacturing activity expanded last month at a slightly faster pace than the previous month, export orders fell in a fresh sign of the damage from intensifying global trade frictions.

Asian economies less reliant on exports fared better, with PMI rising in Indonesia and Malaysia.

Australian manufacturers' activity picked up last month with a rebound in new orders and exports. But other data showed retail sales fizzled out in July, pointing to a subdued start for the third quarter.

REUTERS

A version of this article appeared in the print edition of The Straits Times on September 04, 2018, with the headline 'Trade tensions weigh on Asia's export-reliant economies'. Print Edition | Subscribe