Asian manufacturing PMIs send positive signals but tariff threat tempers upside
Summary
Manufacturing conditions across much of Asia looked slightly stronger midway through the fourth quarter, but trepidation about U.S. tariffs and the economic hit they’ll deal is taking some of the shine off the data.
Manufacturing conditions across much of Asia looked slightly stronger midway through the fourth quarter, the latest surveys show, but trepidation about U.S. tariffs and the economic hit they’ll deal is taking some of the shine off the data.
The suite of Asia purchasing managers’ indexes for November shows the region is still generally upbeat and navigating elevated geopolitical and economic risk well so far, said Katrina Ell, senior economist at Moody’s Analytics. But despite the positivity, Asia’s export-oriented economies face risks from President-elect Donald Trump’s proposed tariffs on U.S. imports, she said.
“Economies running large trade surpluses with the U.S., especially China and Vietnam, remain highly at risk," she said.
That has yet to be reflected in the PMI readings released on Monday, which continued to show many producers feeling optimistic about their prospects in the year ahead.
Hopes for a pickup in sales and demand bolstered South Korean firms’ 12-month outlook for output, and drove Taiwanese manufacturers’ confidence to a three-month high, the data indicated. New export orders also rose, touching a four-month peak in South Korea and climbing to the highest since February 2022 in Taiwan.
In Taiwan, “Asia, Europe and North America were all cited as sources of higher demand, which is impressive in the context of the underlying weakness presently apparent in much of the global manufacturing economy," said Paul Smith, economics director at S&P Global Market Intelligence.
The headline S&P Global manufacturing PMI for Asean increased for the first time in six months in November, backed by a solid rise in production in Southeast Asia, the data showed.
New orders rose in China too, climbing at the quickest pace since February 2023 amid renewed export growth, while business confidence hit an eight-month high, according to the Caixin PMI compiled by S&P Global.
However, export order strength could be down to frontloading of shipments as manufacturers try to get ahead of tariffs, economists say. Trump vowed tariffs of up to 60% on Chinese goods during his campaign and has announced additional tariffs of 10% in the wake of his election win.
“We expect China’s new export orders to strengthen further in the next few months, as U.S. importers engage in stockpiling. This will spill over and boost activity among Asian manufacturers plugged into Chinese supply chains," said Erica Tay, an economist at Maybank.
If pre-emptive stockpiling is behind the regional upturn that means current strength is borrowing from future demand, which will weigh on output in the second half of next year, Tay said.
Another source of uncertainty centers on which other Asian economies may be in the firing line.
“Trump’s protectionist rhetoric won’t be limited to China," said analysts at BMI, a Fitch Solutions company.
They see tariff threats as a negotiating tactic that will be used on others too. Among the top candidates are Vietnam, Japan and South Korea—all major contributors to the U.S. trade deficit, a parameter BMI reckons plays a part in designating tariffs targets.
In a potential sign that the U.S. could widen its tariff scope, Trump in a post on X over the weekend took aim at Brics, an organization of nine countries, including Brazil, Russia and India. “We require a commitment from these countries that they will neither create a new Brics currency, nor back any other currency to replace the mighty U.S. dollar or, they will face 100% tariffs, and should expect to say goodbye to selling into the wonderful U.S. economy," according to Trump’s post.
OCBC senior economist Lavanya Venkateswaran said the post underlines the risk that India’s economy faces from U.S. protectionism, even if discerning potential threats from reality remains a challenge.
How Asia’s manufacturers handle the trade frictions remains to be seen. Economic developments at home and abroad will play a role too.
Capital Economics thinks South Korea, Taiwan and Vietnam will hold up better than others but expects weak global growth to weigh on Asia’s export-oriented manufacturing sectors in the near term. Domestic demand is unlikely to offer a major boost as labor markets cool further, economist Shilan Shah said in a note.
Write to Fabiana Negrin Ochoa at fabiana.negrinochoa@wsj.com
