Asia’s factory activity slumps as Trump’s tariffs hit exports

Factory floors across Asia fell quiet in July, with new data revealing a sharp slowdown in manufacturing activity, underscoring the toll of US President Donald Trump’s tariffs and weak Chinese demand. Yet amid the gloom, India emerged as a rare bright spot, posting its strongest factory growth in over a year. According to private surveys cited by Reuters, key export-heavy economies including China, Japan, and South Korea saw factory activity shrink last month. The purchasing managers’ index (PMI) for each of these economies fell below the neutral 50 mark, signalling contraction. In contrast, India’s PMI surged to its highest level in 16 months, driven by resilient domestic demand and strong order books. The mixed regional picture reflects mounting pressure on Asia’s manufacturing base, once considered the global engine of growth. While new trade deals signed in late July between the US, Japan, and South Korea have since helped ease some tariff-related concerns, their benefits may take time to materialise.

In India, the HSBC Manufacturing PMI rose to 59.1 in July from 58.4 in June, according to S&P Global. While demand remained strong, analysts cited a “darkening” business outlook due to inflation worries and mounting competition. “Despite strong order flows, business confidence fell to a three-year low,” noted a Reuters report, adding that hiring activity also slowed to its weakest pace since November 2024.

In China, the S&P Global Manufacturing PMI dropped to 49.5 in July from 50.4 in June, slipping below the neutral 50 mark and undershooting economists’ expectations, according to a Reuters poll. The decline comes just a day after official Chinese data also showed factory output shrinking for the fourth straight month, signalling a deeper demand slowdown. “The data provides further evidence that China’s economy lost some momentum last month, largely due to domestic weakness,” said Zichun Huang, economist at Capital Economics, as quoted by Reuters.

In Japan, the PMI slipped to 48.9 in July from 50.1 in June, another sign that Trump’s tariffs are weighing heavily on the world’s fourth-largest economy. “It will be important to see if this [Japan-US trade deal] translates into greater client confidence and improved sales in the months ahead,” said Annabel Fiddes, associate director at S&P Global Market Intelligence, which compiles the PMI data.

In South Korea, factory activity contracted for the sixth straight month, with the PMI falling to 48.0 in July from 48.7 the previous month. Economists noted that both production and new orders fell more sharply, worsened by uncertainty over US tariffs “Weakness in the domestic economy was compounded by the impacts of US tariff policy,” said Usamah Bhatti, economist at S&P Global, as quoted by Reuters.

Most of the PMI surveys were conducted before the recent trade deals between the US, Japan, and South Korea, which lowered threatened tariff rates from 25 per cent to 15 per cent. While these agreements offer some hope, analysts say the full benefit may only be visible in coming months. There was some resilience in Southeast Asia, where Vietnam and the Philippines recorded expansion in factory activity, suggesting that supply chain shifts and regional demand may be offering partial buffers. But for now, the bigger picture remains sobering.

What it means for Asia?

Most PMI surveys were conducted beforethe recent tariff truce deals between Washington and its Asian allies, which slashed threatened US tariff rates from 25 per cent to 15 per cent. While these moves provide some relief, analysts warn the full impact may take months to reflect in data. Meanwhile, India could face fresh headwinds of its own. President Trump is expected to impose 25 per cent tariffs on select Indian goods starting Friday, a move that could dent export momentum. At the same time, the Reserve Bank of India is expected to hold interest rates steady next week, but rising inflation could complicate the central bank’s calculus.

The message from the region’s factory floors is clear: Asia’s manufacturing story is diverging. While India powers ahead, buoyed by domestic resilience, major exporters like China, Japan, and South Korea are increasingly caught in the crosshairs of global trade tension.

(With inputs from the agencies)