Asian factories suffer consequences of mounting trade war between US and China

Much has been said and written about the ongoing trade war between the United States and China. However, these intense developments are starting to have a dire effect on factories all around Asia.

Since the threat of tariffs looms over exports looms than other aspects of trade, China is seeing its worst slump since mid-2016 in the same; while the growth of the manufacturing sector is at its slowest in eight months, according to a recent survey of the Purchasing Managers’ Index (PMI). China’s Caixin/Markit Manufacturing PMI dropped to 50.8 from 51 in just a month’s time. Said Julian Evans-Pritchard, senior China economist at Capital Economics in Singapore, “China’s economy is on track to slow this quarter and next.”

China is the main trading partner for most of Asia’s economies and hence the continuing trade war is affecting those countries drastically as well. Even Australia’s PMI reading is its lowest in two years. Meanwhile, Japan faced a slowdown, but it was smaller than was primarily estimated. PMIs showed a contraction in Malaysia, a slowdown in Vietnam and Taiwan, and a modest pick-up in Indonesia. South Korea’s exports showed slower than expected growth. However, Taiwan and South Korea will face the biggest loses as collaterals owing to their exposure to global supply chains. Countries like India, Philippines and Indonesia might suffer via financial market linkages.

Iris Pang, Greater China economist at ING in Hong Kong said, “It is clear that smaller manufacturers are reducing inventories for export deliveries and production is going down,” while adding this was evidence that the trade war was starting to bite. He also said, ““This is just the beginning. If we see tariffs on the (extra) $200 billion, whether it’s 10 per cent or 25 per cent, it covers almost half of exporters. It will have a wide impact.”

 

 

*Neha Hardikar is a Research Intern at The Kootneeti

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