MANUFACTURING activity across Asia slowed in July, deepening concerns about the region’s economic outlook as an intensifying trade conflict between the United States and China sent shudders through their trading partners.

A survey of purchasing managers released yesterday showed China’s manufacturing sector grew at its slowest pace in eight months in July, with new export orders suffering the worst slump since mid-2016.

Similar surveys revealed slowing activity from Australia to Japan. The shipping container market, in which the vast majority of finished manufacturing goods are imported and exported, shows a similar picture: the Harpex container index CHT-IDX-HARPX has fallen by 10 percent from its highest levels since 2011 hit in June.

Factory activity in the euro zone, where tariff threats were on hold, was expected to keep up the pace. In the United States it was seen cooling slightly, but still strong enough for the Federal Reserve to stay on track for two rate hikes this year even if it was likely to hold rates steady this week.

Last month, China and the United States slapped tit-for-tat tariffs on US$34 billion of each other’s goods and another round of tariffs on US$16 billion is expected in August.

China’s Caixin/Markit Manufacturing Purchasing Managers’ index (PMI) dropped to 50.8 from June’s 51.0, broadly in line with an official survey on Tuesday.

The headline number remained above the 50-point mark that separates growth from contraction for the 14th consecutive month, but a reading on new export orders showed a marked contraction at 48.4.

“The data breakdown indicates that an uncertain demand outlook amidst the U.S.-China trade tariffs weighed on both output and sentiment,” said Aakanksha Bhat, Asia economist at HSBC in Hong Kong.

China has been cutting bank reserve requirements to ease the pain of its campaign to de-risk the financial system on smaller companies and support growth. It is also planning more spending on infrastructure to cushion the impact of trade tensions.

Nevertheless, any fiscal and monetary measures would take time to filter through.

The mood outside China, the main trade partner for most Asian economies, is turning sour as well.

In Australia, the PMI survey posted its lowest reading in two years. There was also a slowdown in Japan, although smaller than initially estimated.

On Tuesday, the Bank of Japan pledged to keep its massive stimulus in place but made tweaks to reduce adverse effects of its policies on markets and commercial banks, as inflation remains stubbornly out of reach.

PMIs showed a contraction in Malaysia, a slowdown in Vietnam and China’s Taiwan, and a modest pick-up in Indonesia. South Korea’s exports showed slower than expected growth.

Morgan Stanley analysts estimate an 81 basis point impact on global growth in a scenario of 25 percent tariff hikes across all imports from China and Europe, with the U.S. growth slowing by 1 percentage point and China’s by 1.5 points.

In Asia, China’s Taiwan and South Korea would be the biggest collateral casualties due to their exposure to global supply chains.

In Europe, however, there were encouraging signs of de-escalation after Trump agreed last week to refrain from imposing car tariffs while the two sides negotiate cutting other trade barriers.

Other countries, such as India, Indonesia and the Philippines, which run current account deficits and are vulnerable to global risk aversion and Fed rate hikes, can suffer via financial market linkages.

To defend their currencies, Indonesia’s central bank has raised interest rates 100 basis points this year, while India and the Philippines have increased by smaller amounts in moves that expected to take a toll on domestic demand.

Growth in India’s manufacturing industry also slowed last month, according to a survey released showed just before the Reserve Bank of India was due to announce its rate decision. (SD-Agencies)