Tariff-driven shifts continue to shape Asia’s manufacturing activity

The latest set of S&P Global purchasing managers indexes showed that goods producers in export powerhouses South Korea and Taiwan flagged deteriorating demand last month, but Southeast Asian countries like Vietnam and Thailand recorded a pickup in new orders.

“The October PMI readings for most countries in Asia remained consistent with weak manufacturing activity," said Shivaan Tandon, Asia economist at Capital Economics.

Regional economic growth will likely soften in coming quarters, “as tighter fiscal policy and softer exports amid slower global trade growth outweigh resilient consumption," Tandon said.

For South Korea, the PMI gauge fell below the 50-mark that separates expansion from contraction in activity, to 49.4 in October from September’s 50.7.

While weakness in demand was broad-based, this was likely driven more by domestic factors than external ones, said Kelvin Lam, senior China+ economist at Pantheon Macroeconomics. “Exporters specifically mentioned a notable fall in U.S. demand due to higher import tariffs, though we think this was partly offset by increased shipments to China," Lam added.

Taiwan’s PMI improved slightly to 47.7 from 46.8 in September but remained below the crucial 50.0 threshold. Companies reported softer declines in output and new orders, but both numbers point toward challenging conditions for companies due to reports of sluggish global demand and the impact of U.S. tariffs, said Annabel Fiddes, economics associate director at S&P Global Market Intelligence.

Still, the index is moving toward the neutral 50.0 level, which “hints that the worst of the current downturn is now behind us," Fiddes said.

Even though Taiwan’s new export orders PMI has remained weak throughout the year, actual export earnings have surged thanks to AI-related hardware demand, Capital Economics’ Tandon said. In contrast, South Korea’s PMI readings have held up better but its export performance has been weak, he added.

“The divergence in the soft data between Korea and Taiwan continues to highlight how the manufacturing PMI indices haven’t been a great guide to the hard activity data lately," he said.

In contrast, manufacturing activity in Southeast Asian countries like Thailand and Vietnam “is getting a second wind from robust orders, as a ‘tariff advantage’ emerges vis-à-vis China," given lower U.S. tariff rates, said Erica Tay, an economist at Maybank.

Vietnam’s business sentiment strengthened to a 16-month high amid confidence that new orders will continue to rise, and alongside plans to expand production capacity, according to S&P Global. The rate of expansion of new orders was the fastest since July 2024 as customer demand improved.

“Whether these growth rates can be sustained in the months ahead remains to be seen," said Andrew Harker, economics director at S&P Global Market Intelligence. “For now, customers are happy to look through price increases and commit to new orders, but this may start to wane should rates of inflation pick up further."

The effective weighted U.S. tariffs on goods from the biggest economies in Southeast Asia are on average lower than tariffs on Chinese exports, and this should bode well for their exporters going into next year, Maybank’s Tay said.

Write to Kimberley Kao at kimberley.kao@wsj.com