Trade war impact deepens across Asia, but 'real economic shock' yet to hit

The economic impact of the intensifying trade war between Washington and Beijing appeared to deepen last month with factory activity and export orders weakening across Asia, but analysts warned the worst was yet to come. In a sign conditions for exporters and factories were deteriorating, manufacturing surveys showed marginal growth in China, a slowdown in South Korea and Indonesia and a contraction in activity in Malaysia and Taiwan.

Those figures follow weaker-than-expected industrial production data from Japan and South Korea on Wednesday, with output in the latter shrinking the most in over 1-1/2 years. By contrast, the U.S. ISM manufacturing survey for October due later on Thursday was expected to show a much faster growth pace than in Asia, albeit a tad slower than in September, supporting the outlook for further Federal Reserve rate hikes.

Worryingly, the prospects for higher U.S. rates could feed back more market pain for the region’s externally vulnerable economies — Indonesia, India and the Philippines, which have already been forced to raise rates to mitigate a sell-off in currencies, stocks and bonds. China’s manufacturing sector barely grew last month after stalling in September and export orders contracted further, according to a private sector manufacturing report. An official survey on Wednesday showed the manufacturing sector expanding at its weakest pace in over two years, hurt by slowing demand both externally and domestically.

But absent any deal between Trump and Chinese leader Xi Jinping, who are expected to attend a G20 summit this month in Buenos Aires, the recently introduced 10 percent tariffs on $200 billion of Chinese goods will be raised to 25 percent and other tariffs may be placed on the remaining $250 billion-or-so of Chinese products which escaped the initial rounds.