Factory activity across Asia weakened sharply in July, dragged down by faltering global demand and heightened uncertainty over U.S. trade policy, according to private sector surveys released Friday. The data, gathered largely before recent trade deals between the U.S. and Japan and South Korea, underscores the mounting economic pressure President Donald Trump’s sweeping tariff measures are placing on Asia’s manufacturing powerhouses.
The downturn adds to concerns over the fragility of the region’s post-pandemic recovery, with analysts warning that the continued disruption of global supply chains and cooling export momentum could darken Asia’s economic outlook for the second half of 2025.
China’s factory activity shrank in July, reflecting both soft global demand and sluggish domestic spending. The S&P Global China General Manufacturing Purchasing Managers’ Index (PMI) fell to 49.5, down from 50.4 in June and below the 50-point mark that separates growth from contraction.
The figure also missed analysts’ expectations of 50.4, according to a Reuters poll, and followed official data released earlier showing a fourth consecutive month of factory contraction.
“This provides further evidence that China’s economy lost some momentum last month, largely due to domestic weakness,” said Zichun Huang, an economist at Capital Economics.
The decline suggests that China’s recent export surge, driven by accelerated shipments ahead of impending U.S. tariffs, has now faded, while weak consumer demand continues to weigh on growth.
Japan’s manufacturing sector also contracted in July, with the S&P Global Japan PMI slipping to 48.9 from 50.1 in June. The decline marked the first contraction since March and was attributed in part to fears surrounding rising U.S. tariffs.
Although Japan secured a trade agreement with the United States late last month, reducing tariffs from a threatened 25% to a revised 15%, most of the PMI survey data was collected before the deal was finalized.
“It will be important to see if this [agreement] will translate into greater client confidence and improved sales in the months ahead,” said Annabel Fiddes, economics associate director at S&P Global Market Intelligence.
South Korea’s manufacturing sector contracted for the sixth straight month, with its S&P Global PMI falling further to 48.0 in July from 48.7 in June. The prolonged downturn reflects both weak domestic conditions and heightened trade policy risks.
“Both production volumes and new orders fell at a steeper rate than that in June, with anecdotal evidence indicating that weakness in the domestic economy was compounded by the impacts of U.S. tariff policy,” said Usamah Bhatti, economist at S&P Global.
South Korea finalized a trade deal with Washington just this week, locking in a 15% tariff rate, less than the previously threatened 25%, which may stabilize sentiment in the coming months. However, the July survey, conducted from July 10 to July 23, captured business conditions prior to the agreement.
While some Southeast Asian economies showed resilience, the picture was uneven across the region:
- Philippines and Vietnam recorded expansion in factory activity, bolstered by stable domestic demand and diversified export markets.
- Taiwan, Indonesia, and Malaysia posted contractions, with companies citing declining new orders and higher input costs linked to trade uncertainty.
Malaysia, which negotiated a revised 19% tariff with the U.S., said it remained committed to mitigating the impact on exporters without compromising sovereign policy decisions.
The July data reflects a manufacturing sector broadly in retreat, as businesses across Asia grapple with policy unpredictability stemming from President Trump’s aggressive tariff push. Under the new trade regime, dozens of countries face import duties ranging from 10% to 41%, with Asia’s biggest exporters, including India, Vietnam, South Korea, Japan, and Taiwan, among the hardest hit.
“The uncertainty from U.S. trade policies is proving to be a persistent headwind,” said a regional economist at Nomura. “Even where deals have been struck, the damage to sentiment and investment planning may take time to repair.”
With global demand still tepid and tariff pressures unlikely to ease, manufacturers across Asia are bracing for a challenging second half of 2025, pinning their hopes on stabilization through diplomacy and adaptive supply chain strategies.
Written By Rodney Mbua
