The World’s Factories Are Stalling as Tariff Pain Spreads

(Bloomberg) --

The world’s manufacturing powerhouses sent a simple message on Monday: They’re in the doldrums and could be there for a while. 

A day after the U.S. and China put more tariffs on each other, key gauges for activity in August across Asia and Europe confirmed the trade war’s deepening bite.

Manufacturing purchasing manager indexes for Japan, South Korea and Taiwan remained in negative territory. India’s factory gauge slid to its weakest in more than a year. Indonesia’s slipped to its lowest since July 2017 and the Philippines, Thailand, and Myanmar all expanded more slowly. Figures for the euro-area, U.K. and South Africa are similarly bleak. 

While China’s Caixin Media and IHS Markit PMI stayed in expansion mode, the nation’s official manufacturing PMI dropped to 49.5, according to data released Saturday. Bloomberg Economics Chang Shu noted that gauges on demand and business sentiment in China point at further weakness.

Not everything can be blamed on the U.S.-China conflict: 

• South Korean exports, a bellwether for world trade, slumped in August for a ninth straight month.
• A cooling technology boom and generally weaker global demand is also at play.
• Idiosyncratic issues such as a feud between Japan and Korea aren’t helping. 
• An Oct. 31 deadline for a possible hard Brexit is souring sentiment in Europe. 
• And there’s still the threat of U.S. tariffs on auto imports, that would hurt Germany in particular.

Looking ahead, the dogfight between the world’s two biggest economies looks to make matters worse.

Since the Trump administration put tariffs on roughly $110 billion in Chinese imports on Sunday, commentaries in Chinese state media shrugged off the move and focused on the pain that U.S. consumers are likely to feel.

The new levies are “a turning point in the trade war” with the U.S., according to an editorial in the Communist Party’s tabloid Global Times. The report said the tariffs on daily goods are to hit U.S. consumers directly, and it also showed Washington is almost at the end of its wits.

“The Trump administration has shot Americans in the foot. When more and more Americans feel the pain, maybe it will be time for Washington to recover rationality,”  the editorial said.

Charting the Trade War

A 15% tariff that went into effect Sept. 1 on about $112 billion of goods imported from China will start pushing up prices of clothing, shoes and other consumer goods arriving at U.S. ports this week.

Today’s Must Reads

• Transatlantic ties | U.S. Secretary of State of Michael Pompeo will seek to put relations with the European Union on a fresh footing when he meets the bloc’s new leadership in Brussels this week.
• French tech tax | France’s Finance Minister Bruno Le Maire is set to travel to the U.S. this week for talks with his counterpart Steve Mnuchin on a French plan to tax digital companies.
• Tesla tax break | During a visit last week to China, Tesla’s billionaire chief executive officer Elon Musk won a tax exemption for the electric-car maker.
• ‘American Factory’ | The new Netflix documentary about a Chinese-owned factory in Ohio isn’t being screened in China, but hundreds of thousands of people have seen it anyway.
• Brexit fallout | British Prime Minister Boris Johnson’s “do or die” pledge to exit the EU by Oct. 31 has increased the likelihood of a “hard Brexit” — this Bloomberg QuickTake explains how hard.

Economic Analysis

• China outlook | The official PMI fell deeper into contraction, as the Caixin PMI pointed to weaker demand.
• South Korea slump | Current trends aren’t going away anytime soon — meaning more pain is likely ahead for exporters.

Coming Up

• Sept. 4: U.S. trade balance for July

To contact the editor responsible for this story: Brendan Murray at brmurray@bloomberg.net, Zoe Schneeweiss

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