Factories from Asia to Europe put on brakes amid trade spats

Bloomberg

Manufacturers in some of the world’s biggest economies are putting the brakes on production as they watch trade disputes with the US unfold.
Reports showed factory activity from the Asia Pacific region to Europe slowed last month. With companies issuing warnings about the impact of tit-for-tat battles over import tariffs on their profits, the data suggest that protectionist threats are starting to weigh on global growth.
“Weaker expectations for global trade are clearly feeding through to production,” said Stefan Schneider, chief international economist at Deutsche Bank. “Particularly in many open economies, such as Germany, but also Japan and Korea, weaker expectations for exports weigh on investment activity.”
Carmakers including Germany’s Daimler AG, Japan’s Nissan Motor Co. and South Korea’s Hyundai Motor Co. have outlined the damage they risk from higher levies. Asian companies that form a crucial plank in the global supply chain for electronics are preparing to shift more production to Southeast Asia as it becomes less appealing to produce in China. Even US-based Harley-Davidson Inc. has been caught in the crossfire of the trade conflict, causing it to cut profit-margin forecasts.
The tension was highlighted when China warned the US against “blackmailing and pressuring” it as the Trump administration mulls trying to force officials back to the negotiating table through threats of even higher tariffs. In the euro zone, where manufacturing is stuttering through its weakest spell in one and a half years, the outlook may be a little brighter after policy makers on both sides agreed to hold off from fresh tariffs they negotiate lower trade barriers.
“China’s Caixin manufacturing PMI showed a continuing deceleration in growth in July, consistent with the official PMI. This more external sector based survey highlights greater weakness in exports, particularly for small firms — presenting early evidence of the trade war impact” says Chang Shu and Fielding Chen, Bloomberg Economics.
Euro-area growth unexpectedly weakened in the second quarter, and a Purchasing Managers’ Index by IHS Markit came in at 55.1 in July, only slightly higher than June’s 18-month low of 54.9. Chief business economist Chris Williamson said manufacturers may have to lower production in coming months unless demand revives.
With optimism about the future at one of the lowest levels seen over the past two years, “worse may be to come,” he said. “The slowdown likely reflects worries about trade wars, tariffs and rising prices, and uncertainty about economic outlook.”