Asia Sees Signs of Export Weakness Before Key U.S.-China Trade Talks

Manufacturing activity remained relatively solid in major Asian economies such as China and Japan in April, but exports showed signs of weakness across the region, a worrying development given heightened Sino-U.S. trade tensions.

High-level U.S. and Chinese officials meet in China this week, with trade expected to be top of the agenda as both sides have threatened reciprocal tariffs on hundreds of billions of dollars worth of imports.

The meetings’ outcome could be crucial for the outlook for Asian exporters as Purchasing Managers Index (PMI) surveys of factory activity are already pointing to a slowdown.

“What we’re seeing is a cyclical soft patch in exports after a very strong rise last year,” said Dong Chen, senior Asia economist at Pictet Wealth Management.

“Without considering the potential trade war, we’re not very worried about it, we think it’s fairly normal. But if we think about the trade war ... then the outlook is quite uncertain. It could potentially bring more damage going forward.”

Tensions between the United States and China escalated earlier this year, when President Donald Trump threatened tariffs on up to $150 billion of Chinese goods to punish China over unfair joint-venture and intellectual property practices.

China, which denies allegations it coerces technology transfers through these channels, has threatened equal retaliation, including tariffs on U.S. soybeans and aircraft.

A Trump administration delegation including Trade Representative Robert Lighthizer, Treasury Secretary Steven Mnuchin, Commerce Secretary Wilbur Ross and advisers Peter Navarro and Larry Kudlow is heading to China for talks.

Ross said on Tuesday Trump was prepared to levy tariffs if the delegation did not reach a settlement to reduce trade imbalances. Lighthizer said he was not looking to negotiate changes to China’s state-driven economic system, but would seek to expose it to more foreign competition.

“The agreement to talk, even if not yet to begin formal negotiations, is ... a step in the right direction, albeit one that brings a risk of negative market reaction when followed by inevitable disappointment as talks enter a more protracted phase,” said Jon Harrison, managing director for emerging markets macro strategy at TS Lombard.