Global factories struggle to overcome Trump tariffs, uncertainty
Tired of too many ads?
Remove Ads
Tired of too many ads?
Remove Ads
Factory sentiment is unlikely to turn around until there is clarity on where tariffs are headed — which may take time.
Tired of too many ads?
Remove Ads
More signs emerged in a wave of reports this week that global manufacturing is buckling from President Donald Trump 's trade war Purchasing manager indexes across Asia, along with revised numbers in Europe on Friday, showed new or persisting contractions in factory activity in April.The reports capped a flurry of worrying signals: Few economies are avoiding the concussion of tariffs and paralyzing uncertainty that's engulfed the world economy one month after the US president announced widespread taxes on American imports.Releases earlier in the week revealed damage in the two main combatants, whose tariffs have effectively shut off incentives for trade between nations that account for more than 40% of global GDP. A report Thursday showed US manufacturing activity shrank by the most in five months, a day after data revealed Chinese factories slipped into the deepest contraction since December 2023.Factory sentiment is unlikely to turn around until there is clarity on where tariffs are headed — which may take time, said James Knightley, chief international economist at ING.'The on-off-on-off nature of the tariffs is creating huge uncertainty and that is leading to businesses sitting on their hands,' Knightley said. 'They won't make big decisions until they have some confidence that there won't be another immediate change in the economic environment.'Before this trickle of initial indicators of a downturn began to surface, alarm at the world's prospects was already on show in Washington as finance chiefs gathered for the International Monetary Fund's meetings last month. After a cut in the growth outlook, the lender's chief, Kristalina Georgieva, warned that the chances of a global recession will rise if uncertainty persists.Now, the evidence is crystallizing of a synchronized hit that the world economy may struggle to shake off — even if the rewiring of international commerce sought by the White House does succeed through bilateral deals that remove trade barriers and suspend the imposition of higher levies.The Asian reports on Friday were stark. Indexes for the region's factory giants, including South Korea and Taiwan, slipped sharply amid falling orders and production cutbacks, according to S&P Global. In Southeast Asia, activity shrank in Thailand, Malaysia and Indonesia.Amid the overall gloom, India was an outlier with expansion in activity.Another glimmer of optimism in the near term appeared in the euro area, where the S&P Global manufacturing index reached a 32-month high. But it remained in contraction territory, with only the prospect of a spending binge to rearm the region's military likely to buoy the situation.'Industrial activity remains highly exposed to US tariff policy,' Hamburg Commercial Bank Chief Economist Cyrus de la Rubia said in a commentary. 'Manufacturers were clearly able to expand their profit margins in April, as purchasing prices fell while selling prices rose at their fastest pace in two years.'He added, though, that any improvements might be short-lived given the trade diversion that tariffs are causing. 'This is unlikely to continue as US tariff policy is likely to see Chinese goods being offered more widely in the EU, intensifying competition,' de la Rubia said.Mohit Kumar, chief economist for Europe at Jefferies International, warned that the PMI numbers so far are just the start — and that the impact may linger despite any trade deals Trump concludes.'It could be another few weeks before we really see the hit,' he said. 'Data will weaken even if we get deals with the majority of partners at the end of the 90 days, because there has been a lot of uncertainty, people will have pulled back, supply chains have got broken.'Figures out Friday showed the JPMorgan Global Manufacturing index of future output declined in April to the lowest level since October 2022.Meanwhile, goods producers in emerging markets also took a hit.In South Africa, manufacturers turned more gloomy, blaming uncertainty fanned by global tariffs and domestic political strains. Absa Group Ltd.'s PMI purchasing managers' index, compiled by the Bureau for Economic Research, fell to 44.7 in April — its sixth consecutive month in the contraction zone.Brazil's manufacturing sector neared stagnation in April, with the PMI falling to 50.3, the weakest since December 2023.'Business confidence regarding output prospects dropped to the lowest level in five years amid concerns about US tariff policy and domestic economic conditions,' Alberto Ramos, chief Latin America economist at Goldman Sachs Group Inc., wrote in a report.In Mexico, the decline was even more pronounced. Latin America's second-largest economy saw its PMI plunge to 44.8 in April from 46.5 in March, marking its 10th consecutive month of contraction and the lowest reading since February 2021.Gene Seroka, executive director with the Port of Los Angeles, said he sees weeks or months of disruptions for American retailers and factories alike, given the length of time it takes companies to reroute their supply chains to avoid the US's 145% tariffs on most Chinese goods.'Manufacturing floor space capacity is at a premium, and you don't necessarily just say, 'OK, shut off China today. I'm going to Cambodia tomorrow,'' Seroka said in an interview published Friday by Bloomberg Opinion. 'It doesn't work that way.'
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Indian Express
44 minutes ago
- Indian Express
Fiscal and investment credibility, not headline numbers, will drive India's economic growth
Written by Deepanshu Mohan & Ankur Singh Two critical trends have occurred with little discussion or critical reflection. One is the recent data showing inward FDI (Foreign Direct Investment) capital flows reducing, as against the rise observed in outward FDI (capital moving out of the country), which indicates weakening investor confidence and/or low growth in capacity utilisation of existing (or already invested) private capital in key sectors. According to the RBI, India performs well in terms of greenfield FDI (new projects) investments announced during 2024–25, following the US, UK, and France, as the fourth destination most preferred by investors. But what's important is to distinguish 'gross flows' of investment from 'net flows'. As reported and explained, 'Gross flows account only for the FDI that flows into the country. It doesn't take into account the funds that flow out due to foreign companies repatriating funds to their head offices overseas, or foreign investors selling off investments in Indian companies, or Indian companies investing in ventures overseas. Net flows, after accounting for the outward movement of funds, collapsed to just around $400 million in 2024–25, down from over $10 billion the year before.' This is worrying and signals a structural shift in India's FDI-led investment ecosystem. Beyond this trend, Moody's cut the United States' sovereign credit rating on May 16 from AAA to Aa1. The downgrade wasn't in reaction to a crash, a pandemic, or a war. This was also not a sudden moment of fiscal slippage. It was something slower and far more dangerous: the normalisation of fiscal recklessness at the heart of the global monetary order. The timing of this also matters. Unlike the S&P downgrade in 2011, which followed the debt-ceiling standoff, or Fitch's move in 2023 amid post-COVID distortions, Moody's decision came in a year of relative economic calm, at least on the surface. Inflation is easing, unemployment is low, and global markets are more stable than they've been in years. That's what makes the downgrade quietly radical. Under Trump's presidency, the US has doubled down on a mix of tax cuts, tariff wars, and populist spending — all without credible offsets. The so-called One Big Beautiful Bill, heavy on headline-friendly promises like tax exemptions on tips and overtime pay, masks an extraordinary fiscal burden. Independent estimates peg its ten-year cost at over $5 trillion. That's on top of a debt-to-GDP ratio already exceeding 120 per cent. That shift matters for every other country trying to navigate a world built on dollar stability. It matters most for emerging markets like India, which borrow trust before they borrow money. If even the US can lose its fiscal halo, no country is immune from scrutiny. In India, elections have long served as budget announcements. Whether in the corridors of the Centre or on the campaign trail in the states, fiscal responsibility is often the first casualty of political ambition. Loan waivers, free electricity, subsidised gas cylinders, unemployment stipends, direct cash transfers — the list of election-time giveaways has grown longer with each cycle. In recent years, nearly every state election — from Haryana to Jharkhand, Delhi to Maharashtra — has witnessed a scramble among parties to outdo each other in promises of material entitlements: free rides, free water, free laptops. India's general government gross debt stands close to 80 per cent of GDP. Its combined fiscal deficit continues to hover above prudential norms. Yet our politicians treat the budget as an open-ended ledger for electoral engineering, diverting scarce public funds toward short-term voter appeasement rather than long-term nation-building. This erosion becomes all the more dangerous in the context of a shifting global climate — one in which financial markets may no longer be willing to turn a blind eye to fiscal indiscipline, however well-wrapped in democratic legitimacy it may be. Moody's downgrade of the United States marks a turning point. When the world's largest economy, issuer of the global reserve currency and anchor of financial markets, sees its sovereign creditworthiness questioned, it signals a recalibration in how markets view risk. This is not a one-off judgement. It is part of a broader repricing of fiscal credibility — one that should worry emerging economies more than most. With the US downgrade, the club of AAA-rated sovereigns has grown even more exclusive. Germany and Canada, which were long considered models of stability, too are now grappling with their own budget imbalances, prompting speculation that they, too, may soon fall off the list. For India, the implications of this are twofold and urgent. First, it is a reminder that the global financial order no longer offers blanket indulgence to profligacy. Its capital markets remain vulnerable to swings in foreign sentiment, and its monetary policy is constrained by external balances. In such a landscape, credibility must be consistently earned. Second, India's vulnerabilities are institutional. Beneath the headline numbers, what is often ignored is inconsistent tax enforcement, erratic regulatory actions, and delays in judicial and insolvency mechanisms. These are not peripheral issues; they shape how investors price long-term risk. On FDI, behind the headline numbers shared earlier — often denominated in billions of dollars — India has been affected as well. As a share of GDP, net FDI into India peaked at 2.65 per cent in 2009. According to a recent study, other preferred destinations for FDI, such as China or Vietnam, have also seen net FDI as a share of GDP fall in recent years. I have argued earlier that India needs productivism — to borrow from Dani Rodrik's reasoning — and must prioritise the dissemination of productive economic opportunities and investment capital across all sectors and segments of the workforce. This will help utilise effective capital mobility for job creation as well. All this requires a critical shift from fiscal management as a crisis-response to fiscal credibility as the default posture. Markets don't send warnings like this twice. Deepanshu Mohan is Professor of Economics and Dean, IDEAS, Office of InterDisciplinary Studies, Director, Centre for New Economics Studies, Jindal School of Liberal Arts and Humanities. Ankur Singh works at CNES
Mint
an hour ago
- Mint
Hybrid carmakers seek tax incentives as auto industry lobbies for clean mobility benefits
New Delhi: Hybrid carmakers have approached the ministry of heavy industries seeking tax incentives, according to two people aware of the development, even as the automotive industry has raised concerns over tax parity for hybrids and pure electric vehicles. "Hybrid makers are seeking tax-related benefits because the tax for clean mobility is lower. Electric vehicles have a goods and services tax of 5%, but hybrids are taxed at par with fossil-fuel vehicles," one person said. Hybrid carmakers had approached the heavy industries ministry over the definition of clean mobility and highlighted the tax differential between fossil-fuel and hybrid vehicles, the second person said. The government will incentivise all forms of clean mobility, Mint reported on 6 June, citing heavy industries minister HD Kumaraswamy. A draft of the Delhi EV Policy 2.0 proposing parity of incentives between zero-emission electric vehicles and hybrid vehicles propped up a debate in April, leading to consultations between the heavy industries ministry and automakers. Also Read | Hybrids vs EVs: New advisory for Delhi fleet operators adds fresh fuel to fire The issue of tax incentives for hybrids has been a longstanding concern, the second person said. The matter involves aspects such as whether India can reduce the reliance on Chinese supply chains for EVs and whether state governments are willing to give up tax revenue to support hybrids. There is growing clamour to de-risk electric vehicle portfolios from Chinese supply chains, as highlighted by an industry veteran in a letter to Kumaraswamy. A clean mobility strategy that incentivises only electric vehicles is susceptible to trade-related risks, Rajan Wadhera, former president of the Society of Indian Automobile Manufacturers, said in the letter. "If we pursue only one technology for our carbon-reduction goals, we would be exposing ourselves to serious risk by becoming totally dependent on China," Wadhera said in the letter dated 4 June. However, he added that India can harness alternative technologies such as biofuels, strong hybrids, compressed natural gas, liquified natural gas and hydrogen. SHEV, PHEV Most recently, the disruption in rare earth magnet supply chains, which is controlled by China, has exposed the risks of being import-dependent for key industrial components. Magnet supply constraints could impact electric vehicle production. Maruti Suzuki, India's largest car manufacturer, Toyota and Honda Cars India are among the top makers of hybrids in the country. Maruti Suzuki and Toyota have a strategic partnership under which they share hybrid technology for their vehicles. Queries sent to Toyota Kirloskar Motor, Honda Cars India, and the heavy industries ministry remained unanswered till publishing time. Also Read | India 'increasingly important' as Suzuki's global exports hub for EVs, hybrids, small cars: Toshihiro Suzuki Hybrid vehicles, which use petrol/diesel engines with an electric motor and battery to improve fuel efficiency and reduce emissions, are of two types – strong hybrid electric vehicles (SHEVs) and plug-in hybrid electric vehicles (PHEVs). While SHEVs run mostly on fossil fuels, a battery-powered motor also aids the powertrain. On the other hand, PHEVs have a charging port for a battery that generates electricity for the car, along with an internal combustion engine that runs on fossil fuels. According to Rahul Bharti, senior executive officer for corporate affairs at Maruti Suzuki, the company is pursuing multiple technologies for decarbonisation and is trying to make SHEVs viable in India. However, the GST on SHEVs is almost similar to the rate for fossil fuel cars and their ex-factory cost is higher owing to the battery and motor. 'If we get some policy support and the volume of hybrids increases, we could go beyond Li-ion cell localisation to electrode level localisation and secure our supply chain in India," Bharti said. Compensation cess Experts said the debate over taxation of hybrid vehicles may boil down to the compensation cess component, which is levied on fossil fuel and hybrid vehicles but not on EVs. Electric vehicles attract a GST of 5%, while hybrids and fossil-fuel vehicles are levied a 28% tax. Also Read | How hybrids are reshaping India's green auto market "At present, consumers are subject to a 43% tax on vehicles powered by fossil fuels or hybrids. This consists of a 28% GST and a 15% compensation cess, the latter of which supports state revenues. For certain larger luxury cars, this may be even higher – up to 48%. In contrast, electric vehicles benefit from significantly lower taxation, with only a 5% GST," said Khushboo Jain, principal associate at Roedl & Partner India, a tax consultancy. "States may have to consider if they want to lower their compensation cess, in case the issue is discussed within the GST Council," Jain addeda
Economic Times
an hour ago
- Economic Times
US producer inflation ticks up in May after tariff rollout
US wholesale prices experienced a slight increase in May, according to government data released on Thursday. The producer price index rose by 0.1 percent, driven by a rebound in services costs and a jump in goods prices. Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads US wholesale prices crept up less than expected in May, government data showed Thursday, as economists monitor the effects of US President Donald Trump's wide-ranging producer price index (PPI) rose 0.1 percent last month, up from a 0.2 percent decline in April, according to Department of Labor was boosted by a rebound in services costs, while goods prices also food, energy and trade services, PPI was up 0.1 percent, reversing a 0.1 percent decline in a year ago, PPI climbed 2.6 percent, accelerating from April's 2.5 percent rate, the report had expected a 0.2 percent rise between April and May, according to a consensus forecast by numbers came after Trump imposed a sweeping 10 percent levy on most US trading partners in April, and he has also slapped higher duties on imports of steel, aluminum and expect it will take months for retailers to pass on additional costs to customers. The impact on consumer inflation has been muted for Thursday's report will be scrutinized for any effect it might have on the US central bank's policy meeting next Federal Reserve officials have begun lowering the benchmark lending rate since the Covid-19 pandemic, policymakers have proceeded cautiously in recent times as they monitor the impact of Trump's tariffs.
