JAPAN’S exports slipped for an eighth month in July, while manufacturers’ confidence turned negative for the first time in over six years as China-bound sales slumped again in a fresh sign the Sino-U.S. trade war could tip the economy into recession.

The gloomy data underscored the challenge for Japanese policymakers worried that prolonged weakness in external demand will drive a sharp economic downturn at home.

Exports in July fell 1.6 percent from a year earlier, Ministry of Finance data showed yesterday, dragged down by China-bound shipments of car parts and semiconductor production equipment. That compared with a 2.2 percent decrease expected by economists.

It marked the longest run of declines in exports since a 14-month stretch from October 2015 to November 2016. Yet there was a glimmer of hope for shippers, as export volume rose 1.5 percent in July year on year, the first positive reading in nine months.

Separately, the Reuters Tankan survey showed Japanese manufacturers’ business confidence turned negative for the first time since April 2013 in August.

The negative reading underlined the darkening outlook for the Japanese economy even as the most recent quarter showed a welcome improvement. Gross domestic product grew faster than expected in the April-June period to mark the third straight quarter of expansion, as robust domestic consumption and business investment offset the negative contribution from external demand.

Though service-sector activity remains firm in Japan, simmering international trade tensions have caused manufacturers’ sentiment to worsen.

Analysts at Capital Economics said they expect imports will continue to outpace exports as consumers are seen bringing forward demand ahead of a planned sales tax hike in October.

“The upshot is that net trade may remain a drag on growth in the third quarter,” the analysts wrote in a note to clients.

Anxiety about a global slump rose to fever pitch recently after an inversion in the U.S. Treasury yield curve implied a growing risk of a recession there, and data showed Germany’s economy was in contraction and China’s was worsening.

Exports to China, Japan’s biggest trading partner, shrank 9.3 percent year on year in July, down for a fifth month. The contraction was led by sizable declines of 31.5 percent in semiconductor production equipment, 35 percent in car parts and 19 percent in electronics parts, the data showed.

Shipments to Asia, which account for more than half of Japan’s overall exports, declined 8.3 percent in the year to July.

Export-reliant economies such as Japan have been hit hard by the Sino-U.S. tariff row, which has already upended supply chains and undermined global trade, investment and corporate earnings.

Japan has also been embroiled in an intensifying trade row with South Korea, further threatening to hurt the outlook for its manufacturers.

Japan’s exports to the United States rose 8.4 percent in the year to July, driven by a jump in semiconductor production equipment, construction and mining machinery and airplanes.

It marked the 10th straight month of exports growth to the United States, following a 4.9 percent increase in June, which could raise the ire of U.S. President Donald Trump who has criticized Japan and other trading partners for running what he sees as unfair trade imbalances with his country.

The two countries are set to hold ministerial-level trade talks in Washington this week, with eyes on an early trade deal including U.S. beef exports and Japan’s auto exports.

Imports from the United States climbed 3.5 percent in July, sending Japan’s trade surplus with the world’s biggest economy up 15.6 percent from a year earlier to 579.4 billion yen (US$5.45 billion), the data showed. (SD-Agencies)