Manufacturing activity across Asia slows as trade tiff starts to bite

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Manufacturing activity across Asia slowed in July, deepening concerns about the region’s economic outlook as an intensifying trade conflict between the United States and China sent shudders through their trading partners.

A survey of purchasing managers released on Wednesday showed China’s manufacturing sector grew at its slowest pace in eight months in July, with new export orders suffering the worst slump since mid-2016.

Similar surveys revealed slowing activity from Australia to Japan. The shipping container market, in which the vast majority of finished manufacturing goods are imported and exported, shows a similar picture: the Harpex container index has fallen by 10 per cent from its highest levels since 2011 hit in June.

Factory activity in the euro zone, where tariff threats were on hold, was expected to keep up the pace. In the US it was seen cooling slightly, but still strong enough for the Federal Reserve to stay on track for two rate hikes this year even if it was likely to hold rates steady this week.

Last month, China and the US slapped tit-for-tat tariffs on $34 billion of each other’s goods and another round of tariffs on $16 billion is expected in August.

US President Donald Trump’s Administration, according to a source familiar with its plans, is poised to propose 25 per cent tariffs on a further $200 billion of imports, up from an initial proposal of 10 per cent, and a threat of tariffs on the entire $500 billion-or-so goods imported from China still stands.

Beijing has pledged equal retaliation, although it only imports about $130 billion of US goods. China’s Caixin/Markit Manufacturing Purchasing Managers’ index (PMI) dropped to 50.8 from June’s 51.0, broadly in line with an official survey on Tuesday.

The headline number remained above the 50-point mark that separates growth from contraction for the 14th consecutive month, but a reading on new export orders showed a marked contraction at 48.4.

“The data breakdown indicates that an uncertain demand outlook amidst the US-China trade tariffs weighed on both output and sentiment,” said Aakanksha Bhat, Asia economist at HSBC in Hong Kong.

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