Factories feeling the pinch from escalating trade conflict

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Workers check the quality of accessories of kids’ bikes at a factory in Guangzong County, in China’s Hebei Province. Xinhua

LONDON/TOKYO (Reuters) – Manufacturing activity took a hit from weak orders in August, surveys showed, a sign firms are feeling the pinch from an intensifying trade war between the United States and China that could derail global growth.

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Surveys of purchasing managers released yesterday showed mounting pressure on factories across Europe and Asia, with later data expected to show the United States is in the same grip.

However, growth remained relatively robust and was unlikely to deter major central banks from moving toward tighter monetary policy.

“While we remain alert to the risk of a further loss of momentum from factors such as more protectionism and liquidity shocks, we still think that the most likely scenario is a modest slowdown after the exceptional performance of 2017,” said Ben May at Oxford Economics.

Global stock markets fell for a third straight day on Monday, hurt by worries over further escalation of global trade tensions and the deepening sell-off across emerging market currencies.

US President Donald Trump’s relentless “America First” trade push has hurt confidence in many countries as investors fret about the hit to supply chains.

The fear is 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 $50 billion of exports from China.

While US growth remains solid for now thanks to huge tax cuts, some analysts say it has now peaked.

A Reuters poll last month forecast growth in the world’s biggest economy will slow steadily in 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 in 2019.

China’s vast manufacturing sector grew at the slowest pace in more than a year in August, with export orders shrinking for a fifth month.

Export orders also shrank in Japan and South Korea, suggesting 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 Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute in Japan.

China’s Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) fell to 50.6 in August, matching economists’ forecasts. While the index remained above the 50-point mark that separates growth from contraction for the 15th consecutive month, it was the weakest since June 2017.

New export orders, an indicator of future activity, have contracted for the longest stretch since the first half of 2016, the Caixin PMI showed.

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