Asia’s Manufacturing Stumbles Under Tariff Pressure and Weak Demand

Economic

Summary:

Asia’s factory output deteriorated in July as global demand softened and uncertainty over U.S. tariffs rattled business sentiment. Major exporters like China, Japan, and South Korea recorded contracting PMIs...

Regional Manufacturing Contracts as Trade Headwinds Intensify

Asian manufacturing is faltering again. The latest S&P Global PMIs for July show that industrial activity across the region weakened, largely driven by declining exports and mounting concerns over U.S. trade policy. The deterioration comes just before the announcement of new bilateral trade deals between the U.S., Japan, and South Korea providing a narrow window of optimism moving forward.

China’s manufacturing PMI dropped from 50.4 in June to 49.5 in July, sliding below the critical 50-point threshold that signals contraction. Analysts had expected a steady print, but the reality suggests that the temporary boost from pre-tariff export front-loading is waning while domestic demand remains sluggish. Zichun Huang from Capital Economics noted that China’s economic momentum faltered in July, mostly due to internal weaknesses rather than external shocks alone.

Japan and South Korea Hit Hard, Despite Trade Deal Hopes

Japan’s PMI also fell into contraction territory, dipping to 48.9 from 50.1. Although Japan recently secured a deal with the U.S. that lowered planned tariffs from 25% to 15%, most survey responses were recorded before the agreement. As such, the full impact of reduced trade barriers has yet to be seen. Annabel Fiddes of S&P Global Market Intelligence remarked that client confidence may recover in the coming months if the new deal spurs demand.

South Korea posted a PMI of 48.0 in July, down from 48.7 in June, marking its sixth consecutive month of factory decline. Weakness in domestic demand was compounded by heightened U.S. tariff pressures, leading to steeper drops in both production volumes and new orders. Usamah Bhatti, an S&P economist, emphasized the weight of U.S. trade policy in shaping current business conditions.

Mixed Results in Southeast Asia

Elsewhere in the region, PMI readings reflected a patchwork of resilience and fragility. The Philippines and Vietnam registered manufacturing growth, indicating some resilience possibly due to export diversification and internal market demand. In contrast, factories in Taiwan, Indonesia, and Malaysia all reported contracting output, signifying broader vulnerability across Asia’s second-tier industrial economies.

The timing of July’s surveys before the finalization of some key U.S.-Asia trade agreements means there may still be room for cautious recovery if policy clarity emerges. However, the path forward remains clouded by geopolitical volatility and the inconsistent nature of President Trump’s tariff strategy. Unless confidence is restored and demand recovers, Asia’s fragile industrial recovery risks further derailment.

Source: Reuters

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Samantha Luan

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Forex

Economic

The upcoming Non-Farm Payrolls (NFP) report will be released tomorrow, the same as last month’s consensus expectation of 110K.As a reminder, the July NFP release shook markets with another positive surprise, coming in 37K stronger than the 110K Expected (+ 147K). Markets are now awaiting to see if the US can once again surprise with more upside on its Labor data.For those newer to trading, the NFP is one of the most market-moving data releases globally. It offers insight into the health of the US labor market for the just—concluded month, with the Unemployment Rate also published at the same time.

Market moving flows as July concludes

We are concluding a strongly volatile July trading, with powerful disruptions to what was the 2025 most significant trend of US Dollar selling:After hitting 96.40 lows on its Dollar Index (DXY), the Greenback made its way back to the 100.00 level just today after Core PCE came in stronger once again (0.3% m/m vs. 0.2% estimate).The key question for the upcoming month is: Will the US keep beating expectations as they have done since 2024?The answer to this will help to assess when the first FOMC rate cut of the year will take place.All participants are getting ready for the session close which brings the usually volatile Month-End flows.

Let’s now explore:

● Seasonal trends for August payrolls

● A small look at the Dollar Index

● What potential reactions traders might expect from this key report

Seasonal trends for the August NFP release

August NFP (where Markets learn more about the prior month’s data) averages around 160,000 since 2010, excluding 2020 and 2021 due to COVID recovery numbers significantly influencing typical trends (1.80 Million jobs created in the August 2020 NFP!).

August Non-Farm Payrolls Preview_1

Dollar Index 8H Chart, July 31, 2025 – Source: TradingView

The US Dollar is up around 2.60% since last Thursday’s lows, which is shaking up FX markets.In our previous US Dollar analysis, we mentioned a potential Break-Retest pattern from the 2025 Downtrend and after some strong data, the rally took the index from 97.15 to some 100.12 highs in the morning session.US Dollar strength will be a key to monitor upcoming flows in August – A significant break above the 100.00 to 100.50 Resistance should accelerate the rebuying of Dollar-selling positions.

On the other hand, staying around the 100.00 should lead to some more longer-run consolidation for currencies – A stronger Dollar may also impair Equities a tid-bit, as they are still at record-highs.FYI, the Weekly RSI on the Dollar Index is back right at neutral levels, coming back from oversold which would re-allow a more balanced buying/selling scenarios – Markets are once again at a tipping point.

What to Expect from this Upcoming Report

This upcoming report will be even more tricky than the previous one.Seeing the major reversal in the US Dollar, participants will look to spot if this ongoing strength is poised to cancel more of the 2025 “Dollar-selling” flows, or if a weaker employment figure would provide a good point to resume the Dollar-selling trend.I cannot emphasize enough how important the 100.00 level is in the DXY. What’s priced in:US Equity markets are at all-time highs and FX Majors have all corrected significantly since their July 1st highs.Markets have reacted positively to the EU-US and Japan-US Trade Deals – More Deal announcements are expected, particularly with Mexico and China talks getting pushed back – For now, Equities are still trading in the TACO tradeWatch for potential sell-the-news on actual settlement of deals similar to what happened with the Euro.

What to expect (subject to largely different reactions as Markets are tough to predict):

Looking at the current state of pricing, Equities are at an extreme and Forex flows are more balanced after the strong July correction.A miss would once again prompt the largest reactions, with US Dollar selling resuming in a flash, substantially higher pricing of a September cut (more cuts throughout 2025), and Equities correcting sharply.A beat would shoot the Dollar higher yet again, with Equities following the same direction, Cuts getting priced out further towards 25 bps in 2025 and Gold would correct strongly.

An as-expected report (~ +/- 5K from the 110K expectations) would lead to a small correction in the USD and Equities, followed by more rangebound action throughout the first part of the month in the waiting of more data (Major focus on CPI).The extent of such outcomes would depend on how large the beat/miss is.

Source: ACTIONFOREX

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Economic

Australia Escapes Tariff Escalation, Stays at 10%

Australia Trade Minister Don Farrell confirmed that the United States will maintain a 10% tariff rate on Australian goods under the latest executive order signed by President Donald Trump. This places Australia among a small group of U.S. trade partners that avoided steeper duties, with many other countries now subject to tariffs ranging from 15% to 41%.

According to Farrell’s spokesperson, the White House confirmed no country has secured a tariff rate below Australia's, reinforcing the strength of bilateral ties and trade cooperation. Despite this favorable treatment, Farrell emphasized that Canberra will continue to advocate for full tariff elimination in accordance with the U.S.-Australia Free Trade Agreement (AUSFTA).

U.S.-Australia Trade Surplus May Have Helped

A key factor supporting Australia’s position is the U.S. trade surplus, which reached $17.9 billion in 2024, a 1.6% increase from 2023, according to data from the U.S. Trade Representative’s office. Unlike many other U.S. partners that run trade surpluses with Washington, Australia’s net import status makes it less vulnerable to tariff retaliation under Trump’s protectionist stance.

Australia’s recent decision to ease restrictions on U.S. beef imports may also have bolstered goodwill, though Prime Minister Anthony Albanese denied any link to the current tariff outcome, asserting that the policy change had been under review independently of trade negotiations.

New Zealand Not So Fortunate

In contrast, New Zealand now faces a 15% U.S. tariff rate, up from the initial 10% baseline set in April. Trade Minister Todd McClay acknowledged the need for direct dialogue with U.S. officials and described prior engagements as "very good," suggesting Wellington hopes to negotiate a rollback or clarification of the new rate.

This development introduces friction between two traditionally aligned Pacific economies and may push New Zealand to reassess its trade diversification strategy in the face of U.S. unpredictability.

Australia’s exemption from steeper U.S. tariffs is a strategic win, providing relative certainty for exporters amid a turbulent global trade environment. However, the 10% levy still represents a trade barrier, and Australian officials remain committed to leveraging diplomatic and economic tools to restore zero-tariff access in line with the spirit of AUSFTA.

Source: Reuters

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Economic

Dollar Strengthens on Tariff Momentum and Global FX Weakness

The U.S. dollar continued to gain across the board on Friday, closing in on its best weekly performance since 2022, buoyed by President Donald Trump’s sweeping tariff hikes on dozens of trade partners. The U.S. Dollar Index climbed above the psychologically significant 100 mark, hitting 100.10, a level not seen since late May.

Despite Trump’s renewed criticism of Fed Chair Jerome Powell whom he called a “terrible” pick market participants shrugged off concerns over central bank independence in the short term. Instead, the dominant market theme was the tariff-induced global risk repricing, which heavily favored the greenback.

Yen Slides as BOJ Disappoints Hawks

The Japanese yen led losses in Asia, weakening to 150.89 per dollar, its lowest since March 28. This slide followed the Bank of Japan's decision to hold interest rates steady at 0.5%, coupled with a lack of urgency to resume monetary tightening. The move disappointed investors who had priced in a more hawkish shift due to rising inflation forecasts.

This dovish stance, juxtaposed with rising U.S. yields and geopolitical trade concerns, renewed pressure on the yen, which remains vulnerable to carry trades and broad dollar strength.

Loonie and Franc Tumble Under Tariff Pressure

Canada’s dollar, or loonie, dropped to a 10-week low at C$1.3872 per USD, following the White House’s decision to impose a 35% tariff, a sharp jump from the previously threatened 25%. This unexpected escalation part of a separate executive order linked to illicit drug concerns added immediate selling pressure to the Canadian currency.

Similarly, the Swiss franc weakened to 0.8120 per dollar, down 0.26%, as Trump slapped a 39% tariff on Swiss exports up from the 31% previously floated. The Swiss economy, known for its export strength in pharmaceuticals, machinery, and luxury goods, now faces heightened trade risk that could dampen investor appetite.

Euro Hovering Near Two-Month Lows Amid Trade Deal Unease

The euro traded at $1.1420, barely above its Wednesday low of $1.1401, which marked its weakest point since June 10. Analysts attributed the euro’s underperformance not only to dollar strength but also to skepticism over the EU-U.S. trade agreement, which some investors view as asymmetrical and disadvantageous to the eurozone.

According to Mike Houlahan of Electus Financial, "the euro has been rerated downward" due to the lack of clarity and balance in the trade arrangement. Markets are awaiting further developments to gauge the euro’s medium-term trajectory, particularly as the ECB faces pressure to support growth without reigniting inflation.

While short-term momentum favors the dollar, analysts warn that longer-term FX stability may hinge on global responses to U.S. trade policies. As major economies adjust to new tariff structures, central bank divergence and economic retaliation could reconfigure FX dynamics heading into the second half of the year.

Source: Reuters

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China–U.S. Trade War

Manufacturing Contraction Deepens on Export Slowdown

China’s manufacturing activity stumbled in July, according to the S&P Global China General Manufacturing PMI, which slipped to 49.5, down from 50.4 in June. This figure fell below the 50.4 consensus forecast and clearly signaled a re-entry into contraction territory. The disappointing reading aligns with Thursday’s official PMI and raises concerns about the sustainability of China’s earlier growth rebound.

The key drag came from the weakening of new orders, especially exports, which contracted for the fourth consecutive month, and at a faster pace than in June. Economists had anticipated a boost in export orders due to front-loading before anticipated U.S. tariff hikes, but the benefit now appears to be fading a warning sign for China’s trade-reliant recovery.

Firms Respond with Output Cuts and Job Losses

After showing modest strength in June, manufacturing output fell in July, as companies scaled back production in response to declining orders. Rather than ramping up production, firms relied on existing inventories to fulfill contracts, resulting in a second straight month of declining post-production stock.

In tandem, employment weakened, with firms cutting headcount to manage costs. The reduction was attributed not just to weaker demand but also to rising financial pressure and thin margins caused by sustained price competition.

Price Pressures Return Amid Intense Competition

While input costs rose for the first time in five months, primarily due to higher logistics and commodity prices, manufacturers continued to lower their selling prices to stay competitive. This persistent undercutting part of what Beijing calls the “price war” has weighed heavily on margins.

However, export prices rose at the fastest pace in a year, indicating that global buyers are now absorbing some of the additional shipping and logistics costs. Yet this may not be sustainable if demand continues to weaken globally, particularly under the shadow of U.S. tariffs.

Cautious Optimism Amid Calls for Policy Support

Despite July’s deterioration in output and employment, business sentiment improved modestly, with manufacturers expecting better conditions in the months ahead driven by anticipated promotional campaigns and stimulus efforts from Beijing. However, sentiment remains below the long-term average, highlighting lingering concerns about deflation and overcapacity.

In response, China’s top leadership signaled renewed focus on industrial policy, including the potential for a new round of factory capacity cuts to address oversupply and deflation risks. These efforts could revive pricing power but are difficult to implement without triggering job losses or production gaps, especially in politically sensitive sectors.

Source: Bloomberg

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Stocks

Growth Fears Override Tech Optimism

Asian stock markets extended their losses on Friday following the U.S. administration’s announcement of a wide range of new tariffs. The MSCI Asia Pacific Index fell 0.6%, led by a 3% drop in South Korea’s stock market, as Trump implemented duties ranging from 10% to 40% targeting virtually all major trading partners.

Investors largely shrugged off solid earnings from tech giants like Microsoft, which briefly pushed past a $4 trillion valuation. AI-driven enthusiasm that had buoyed markets in recent months was no match for growing trade fears, particularly as key Asian export economies face higher duties.

Dollar Climbs, Regional FX Weakens

The U.S. dollar strengthened modestly, posting its first monthly gain since Trump returned to office. The Taiwan dollar fell for a seventh straight session, the longest slide since 2023, after the island was hit with a 20% U.S. tariff. The Swiss franc also edged lower after Washington levied a steep 39% tariff on Swiss goods.

Sovereign bond markets were steady but cautious. The U.S. 10-year yield held at 4.38%, while Australia’s 10-year yield rose five basis points to 4.31%, reflecting concerns over how the region might absorb the economic hit from reduced trade flows.

Policy Uncertainty Deepens as Investors Lose Visibility

According to Saxo Markets’ Charu Chanana, the lack of a consistent framework behind the tariff levels and apparent arbitrariness of the rates have rattled investor confidence. Although the White House released the final figures late Thursday night, many countries including Taiwan are still in limbo about whether they can negotiate adjustments before implementation.

Bloomberg strategist Garfield Reynolds warned that the market is entering “an era of substantial barriers to trade,” projecting global growth to decline as corporate decision-making becomes constrained by uncertainty and rising costs.

Tariff Breakdown: Who’s Affected and How

The new U.S. trade regime includes a 25% levy on Indian exports, 20% on Taiwan, 39% on Switzerland, and 30% on South Africa. Southeast Asian nations such as Thailand and Cambodia will face 19% tariffs, despite reports of last-minute talks. Only a handful of countries, like the U.K., escaped significant increases.

The Taiwan government clarified that the 20% tariff is considered “temporary,” and negotiations are still ongoing. However, the delay in scheduling a formal meeting with U.S. counterparts underscores diplomatic bottlenecks complicating efforts to reach resolution.

Broad Weakness Despite Select Bright Spots

In equity markets, Japan’s Topix rose 0.4%, offering a rare gain amid the broader selloff. However, Australia’s S&P/ASX 200 declined 0.8%, and China’s Shanghai Composite slipped 0.1%. Futures for both S&P 500 and Euro Stoxx 50 fell 0.2%, indicating pressure could continue across time zones.

Bitcoin dropped 1% to $115,322, while Ether lost 1.3%, reflecting risk-off sentiment spreading to digital assets. Gold dipped 0.2% to $3,282.52/oz, signaling some loss of safe-haven appeal as investors await further data.

Crude oil prices remained stable despite tariff news, possibly buffered by offsetting geopolitical supply concerns and limited demand reaction in early trade.

Eyes on U.S. Jobs and Inflation Data

Markets will now turn to Friday’s U.S. jobs report for July, with forecasts pointing to a slight uptick in unemployment to 4.2% and a moderation in hiring. These figures will influence expectations on future Federal Reserve moves, especially given that core PCE inflation rose 0.3% in June, reinforcing the persistence of underlying price pressures.

While megacap tech and AI remain fundamental to longer-term bullish narratives, rising trade frictions and volatile policymaking are creating a foggy near-term outlook.

Source: Bloomberg

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Economic

A New Tariff Era Begins: Aggressive, Immediate, and Global

In a dramatic escalation of trade policy, President Trump has signed an executive order imposing new tariffs on nearly every major U.S. trading partner. The centerpiece of the announcement is a 35% tariff on Canadian imports up from 25% set to take effect immediately under a separate order citing illicit drug concerns. All other increases will begin seven days after the July 31 signing, taking effect at 12:01 a.m. EDT on August 8.

The scope of the order is extensive: 15% duties are confirmed for the EU, Japan, and South Korea; India will face 25%; Taiwan 20%; and Southeast Asian nations are generally set for 19–20%. Meanwhile, countries like Switzerland and South Africa are subject to more than 30% tariffs. The U.K. escapes with an unchanged 10% rate, while Mexico has been granted a 90-day tariff freeze following what Trump called a "very successful" phone call with President Claudia Sheinbaum.

Trump's Trade Strategy: Economic Nationalism via Tariffs

This order reflects Trump’s long-held belief in tariffs as both an economic weapon and a political tool. Unlike past protectionist measures aimed at specific sectors or bilateral imbalances, this round reflects a near-universal strategy to "reset" trade terms. Trump’s justification stems from the International Emergency Economic Powers Act of 1977, allowing executive action under a national emergency designation.

The administration's rhetoric is uncompromising: Trump declared, “Tariffs are making America GREAT & RICH Again,” contrasting current actions with what he described as decades of economic weakness enabled by low duties.

Yet these changes carry heavy economic consequences. According to the Yale Budget Lab, the effective average U.S. tariff rate has already risen to 18.4%, the highest since 1933, and is now poised to climb further as the full impact of these duties is factored in.

Trade Disruption Incoming: Delays, Confusion, and Transshipment Risks

Though the new tariffs will apply broadly, goods already in transit may escape the higher rates. Products shipped before August 7 and arriving before October 5 will still be subject to the previous lower tariff levels. However, Trump’s executive order includes a major caveat: a 40% surcharge on any items deemed to be “transshipped” to evade duties, without providing clear definitions raising the risk of customs disputes and delays at U.S. ports.

Smaller U.S. importers are already bracing for impact. Legal challenges are underway, with critics questioning the president’s authority to enact sweeping duties without congressional approval. The Justice Department has sided with Trump, citing emergency economic powers, but the legality of the move could face extended court scrutiny.

Canada and Brazil: Key Targets of Special Tariff Orders

Canada stands out with an immediate 35% tariff, framed by the administration as a response to the cross-border drug crisis. Brazil, meanwhile, is set to face a 50% duty under a separate order that began counting down on July 30, making its implementation date earlier than the broader package. These targeted actions underscore Trump’s dual strategy: global tariff floors alongside customized surcharges for countries seen as particularly problematic.

Global markets are already responding. Copper futures (HG=F) rose 1.46% following the announcement, likely on expectations of supply chain disruption and increased U.S. infrastructure investment to offset foreign dependencies. Analysts warn that the tariffs could stoke inflation, complicate supply chain management, and trigger retaliatory measures from affected nations.

For now, Washington’s position is clear: Trump’s second-term trade doctrine is not about compromise but about economic self-reliance and leverage through tariffs. Whether it delivers long-term gains or sparks another trade war remains to be seen.