Asian factories bear scars of Trump's tariff blast

Manufacturing in every major Asian economy with a trade surplus with the US shrank during the month, as US president Donald Trump's 2 April reciprocal tariffs cast a cloud over global trade.

China's official Purchasing Managers' Index (PMI) fell to 49 in April from 50.5 in March, indicating a contraction. The decline, the fastest in 16 months, is largely attributed to the reciprocal tariffs announced by the US, which went up to 145% tariffs by 9 April.

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A large part of this was subsequently rolled back this month following the 12 May US-China trade deal, leading to a tariff reduction of 115% by both countries on shipments from the other for 90 days.

Caixin China General Manufacturing PMI shared by S&P Global too reflected a similar trend with a reading of 50.4 in April, its lowest since January, compared to 51.2. A reading above 50 shows overall expansion compared to previous month, and below that, a contraction.

Vietnam's manufacturing sector contracted sharply in April, with the PMI dropping to 45.6 in April from 50.5 in March. The steep decline reflects a significant reduction in new export orders and marks the lowest PMI since May 2023.

Meanwhile, India improved its PMI reading in April to 58.2 from 58.1 in March, a fractional increase, but still the best show in 10 months, according to S&P’s statement. S&P's panel of 400 producers attributed the growth to “better domestic and international demand." New export orders too grew at the second-fastest rate in over 14 years amid a churn in global supply chains.

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South Korea, which also has a trade surplus with the US, suffered a decline in manufacturing activity in April, with PMI falling to 47.5 in the month, from 49.1 in March.

Malaysia's manufacturing PMI decreased slightly to 48.6 in April from 48.8 in March, marking the 11th consecutive month of contraction.

China, Vietnam, South Korea, Japan, Malaysia and India had trade surpluses of $295.4 billion, $123.5 billion, $66 billion, $68.5 billion, $24.8 billion and $45.7 billion respectively in 2024, data from the US Trade Representative showed.

India's manufacturing sector is at a fascinating confluence of cyclical strength and structural opportunity, said Rishi Shah, partner and economic advisory services Leader, Grant Thornton Bharat.

“The robust PMI readings exceeding 58 for consecutive months signal a manufacturing ecosystem that's not merely surviving global headwinds but thriving amid them," said Shah.

However, we must contextualize this against the more modest industrial output (IIP) expansion of 4% for FY25—the weakest in four years—suggesting that while sentiment and new orders remain robust, actual production growth faces challenges, he said.

“The policy imperatives remain unchanged but require renewed vigour: enhancing ease-of-doing-business reforms to remove persistent bottlenecks, channelling private investment into manufacturing through targeted fiscal incentives, and pursuing supply chain diversification through expanded directional assistance. The framework exists; execution now becomes paramount," added Shah.

Deepak Jain, co-chairman of Confederation of Indian Industry’s Council for manufacturing excellence and chairman of Lumax Group, said the manufacturing sector has maintained its momentum both on account of domestic demand and export requirements.

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“The sentiment is positive, and the RBI’s repo rate cut of 25 basis points in April signals further reduction. Definitely, we will see further momentum in private investments in the near term," said Jain.

Shah of Grant Thornton Bharat said that as geopolitical volatility is likely to persist in the near future, India must do all it can to ensure that manufacturing becomes its engine of growth, aiding the already strong services sector.

“Innovation and quality in production would be key as we seem to be at an inflection point where India’s manufacturing can fundamentally transform," said Shah.

Experts pointed out that the US-China trade deal is a wake-up call for India to make its policy-infrastructure ecosystem for manufacturing world-class.

Ajay Srivastava, founder of economic think tank Global Trade Research Initiative and former trade service official, said the US–China trade truce, which slashed US tariffs on Chinese goods from 145% to 30%, risks undermining India’s gains from the China-plus strategy.

“When tariffs on Chinese imports were prohibitively high, India’s relatively low 10% duty made it an attractive hub for supply chain diversification. That advantage has now narrowed dramatically. With tariff pressure easing, global firms—particularly in electronics, machinery, and consumer goods—may rethink their shift to India and delay plans to relocate capacity out of China," he said.

“The deal signals that the US is willing to normalize trade ties with China, at least temporarily. This weakens the geopolitical logic that drove many companies to hedge against China risks by expanding in India. While India may still attract low-margin, labour-intensive assembly work, high-value investments that require reliable infrastructure and deep supply chains could stall or shift back to China. For India, this is a wake-up call," said Srivastava.

To sustain investor interest, India must rapidly improve cost competitiveness, cut red tape, and develop industrial ecosystems that go beyond final assembly, he added.

While the latest PMI readings show strong manufacturing performance by India, experts have said India should take measures to boost domestic consumption demand over the medium term to reach its aspiration of becoming a developed economy by the middle of this century.

The finance ministry’s latest economic review pointed out that key indicators like high GST revenue receipts— ₹2.36 trillion in April before refunds—suggested a steady growth in economic activity while consumer sentiment, as pointed out by an RBI survey, has shown improvement.

RBI’s Industrial Outlook Survey of the manufacturing sector released on 9 April too pointed out better demand conditions reported by producers in the March quarter of FY25 and optimism on demand conditions in the June quarter of FY26.

While highlighting the Indian economy’s resilience, the finance ministry’s monthly review, however, cautioned about uncertainties stemming from global developments constituting a key risk for the growth outlook for FY26. The review made a strong case for a mutually reinforcing cycle of “investment-income growth-demand growth-additional capacity creation."