Asia’s manufacturing engines stall amid trade uncertainty; China emerges as lone bright spot

Asia’s once-resilient manufacturing sector is showing signs of sustained fatigue as June PMI (Purchasing Managers’ Index) data from across the region point to a deepening contraction in factory activity, with China standing out as a rare exception. Amid persistent global trade tensions, especially around US tariffs under President Donald Trump, many export-reliant economies, including Taiwan, Vietnam, South Korea, and Indonesia, are reporting falling orders, reduced output, and job cuts. China’s manufacturing sector, meanwhile, managed to return to growth in June, with its PMI rising to 50.4, breaching the critical 50 threshold that separates expansion from contraction. This contrasts with the rest of Asia, where both domestic and foreign demand have remained subdued and prospects remain clouded by tariff uncertainties and declining global consumption.

Widespread contraction across Asia

The S&P Global PMI readings across much of the continent paint a grim picture. Taiwan’s manufacturing PMI fell to 47.2 in June from 48.6 in May, marking the steepest contraction in 18 months. The slump was driven by sharp declines in both new business and export orders, with manufacturers citing “reduced customer demand at home and overseas amid tariff concerns”, according to Annabel Fiddes of S&P Global Market Intelligence.

Vietnam’s PMI fell to 48.9, dragged down by what businesses described as a tariff-induced collapse in export orders, particularly to the US. Staffing, purchasing, and inventories all saw corresponding cuts, although production showed marginal growth. The country’s manufacturers noted that US tariffs had been a major factor behind the decline in foreign business.

Elsewhere in Southeast Asia, the picture was similarly bleak. Indonesia posted the region’s worst reading at 46.9, down from 47.4 in May. The country saw its sharpest fall in new orders since August 2021, triggering contractions in output and employment. Malaysia and the wider ASEAN bloc also remained mired in contraction, with ASEAN’s overall PMI dipping to 48.6, its lowest level since August 2021, amid worsening foreign demand and production cuts.

South Korea, a key manufacturing hub, reported a PMI of 48.7 in June, an improvement from 47.7 in May, but still indicative of contraction for the fourth straight month. Manufacturers reported a fourth consecutive drop in production and a third in export orders, with global clients showing increasing hesitancy as tariff uncertainty looms. Despite a slight recovery in domestic sentiment, the employment index turned negative again, highlighting fragile conditions on the ground.

Japan managed a symbolic return to growth with its PMI rising to 50.1 in June—the first reading above 50 since May 2024—helped by a slight increase in production. But the country remains exposed to escalating US tariffs, with President Trump threatening new levies on Japanese imports. Business optimism improved, but underlying demand remained weak, and both new orders and exports continued to decline.

Even traditionally resilient economies such as the Philippines and Thailand are feeling the strain. The Philippines PMI rose modestly to 50.7, but supply chain constraints and labour shortages hampered growth. Thailand, by contrast, posted stronger numbers, its PMI rose to 51.7, the best since August 2024, thanks to better export orders and strong promotional activity. However, manufacturers there remained cautious amid easing optimism.

China: A fragile recovery

Amid the widespread gloom, China has emerged as the only major Asian economy to register an expansion in manufacturing activity. Its June PMI rose to 50.4 from 48.3 in May, driven by a rebound in new domestic orders and production. Though the increase was marginal, it marked the fastest pace of output growth since November 2024. Firms credited promotional activities and better trade conditions for the rebound.

Still, the recovery is far from robust. Export orders declined for a third consecutive month, although the pace of decline eased. Manufacturers continued to cut jobs in response to cost pressures and uncertainty about the global trade outlook. Business confidence, while still positive, weakened and remains below the long-run average.

Chinese firms also faced deteriorating supply chain conditions and were cautious about input purchases. Despite these headwinds, cost savings from lower raw material prices allowed manufacturers to reduce output charges, helping maintain competitiveness.

Tariff deadlines loom large

The regional downturn comes as the three-month grace period on Trump’s reciprocal tariffs is set to expire on July 9. Washington is expected to announce further tariff actions shortly after the US July 4 holiday, including sweeping 24 per cent duties on Japanese imports unless a last-minute agreement is reached. The ongoing brinkmanship has left businesses wary of investing or hiring, further straining supply chains and undermining fragile recoveries.

Economists warn that the region’s deflationary pressures, intensified by cheap Chinese exports and reduced global consumption, may worsen if geopolitical tensions remain unresolved. Despite China’s positive headline reading, the outlook for the broader region remains troubled. Unless global demand picks up and tariff risks recede, Asia’s role as the world’s factory floor may be in for a prolonged period of restructuring and stagnation.