Manufacturing optimism wanes in Southeast Asia amid US tariffs

Optimism among Southeast Asian manufacturers dropped to its lowest level since July 2020, despite a modest rise in output, as U.S. tariffs dampened sentiment. Factory activity in China, Japan, and South Korea also contracted, reflecting broader regional trade pressures.

Manufacturers across Southeast Asia saw their optimism about future growth drop to the lowest level since the depths of the Covid-19 pandemic, even as factory activity showed a modest improvement last month (July), amid US President Donald Trump’s prolonged tariff measures.

According to S&P Global’s Purchasing Managers’ Index (PMI) data, confidence in future output across the region fell to its lowest level since July 2020. This decline in sentiment comes despite a modest improvement in overall activity. The headline PMI rose for the first time since March, reaching 50.1 in July—just above the 50-point mark that separates expansion from contraction—after recording its steepest drop in nearly four years in June.

The fragile recovery is being overshadowed by ongoing trade tensions. Since April, President Trump has introduced steep tariffs on Southeast Asian goods, with rates ranging from 10% to 40%, targeting a region that serve as a barometer for global trade activity and demand. These economies are heavily reliant on industrial output and exports, particularly to the United States, making them vulnerable to shifts in trade policy.

There were some signs of improvement in external demand. New export orders contracted at a slower pace, and output prices rose more quickly, suggesting some pickup in overseas demand. However, these gains were not enough to lift overall sentiment.

Meanwhile, factory activity in key regional players China, Japan and South Korea remained weak, with these countries posting another month of contraction. 

The S&P Global China General Manufacturing PMI declined to 49.5 in July from 50.4 in June, falling short of analysts’ expectations of 50.4 as per a Reuters poll, and slipping below the 50-mark that signals expansion versus contraction.

The S&P Global Japan manufacturing PMI also fell to 48.9 in July, from 50.1 in June, a sign that US tariffs were hurting the world’s fourth-largest economy.

In South Korea, factory activity continued to shrink for the sixth consecutive month, with the PMI slipping to 48.0 in July from 48.7 in June.In July, factory activity expanded in the Philippines and Vietnam, but declined in Taiwan, Indonesia, and Malaysia.

The PMI survey, conducted in the latter half of each month, bases three-quarters of its headline reading on trends in output, new orders, and employment.