AS the United States and China continue to exchange tariff-blows, fear of a global trade war has pushed confidence among Asian companies to a three-year low in the third quarter of this year.
A new survey from Thomson Reuters and INSEAD shows a dramatic decrease in business optimism over the quarter; the steepest decrease since 2009. On the Asian Business Sentiment Index a score above 50 indicates a positive outlook. The latest reading is just 58, falling from 74 just three months earlier.
“The fall in the index could be a strong signal of an economic slowdown,” said Antonio Fatas, a Singapore-based economics professor at global business school INSEAD, adding that the survey results had historically correlated well with changes in economic growth in Asia-Pacific.
“We have witnessed a cyclical upturn in the world economy that had to come to an end. We see the end of the cycle in advanced economies as well as emerging markets. This survey confirms that these fears are real,” he said.
The survey represented the outlook of 104 firms.
When asked what the chief risk threatening business, the global trade war was the most common answer. The second was a China economic slowdown and currency fluctuations.
Last week, US President Donald Trump order officials to slap tariffs on another US$200 billion of Chinese goods. In retaliation, China used the only tools left in its arsenal and hit US$60 billion in US products with duties.
While neither the United States nor China would benefit from a lengthy, all-out trade war, there is little prospect of the dispute being solved anytime soon.
With the global nature of supply chains, the impacts are likely to felt well beyond Beijing and Washington. Most notably, Asia, which relies heavily on China for trade.
Trump’s focus on China has had a dramatic impact on sentiment within the country. The subindex plummeted from 63 to 25, representing the lowest reading ever and its first negative outlook.
“Because China has become the main target for the U.S., there is increasing uncertainty about the Chinese economy,” Fatas told Reuters.
Emerging markets are the most at risk in Trump and China’s President Xi Jinping’s tit-for-tat trade spat.
So far, Indonesia, the Philippines and India have been the hardest hit, with all countries increasing interest rates just to support their currencies.
Despite this uncertainty, the Reuters survey showed companies in Indonesia and India are some of the most optimistic in the region, with only Thailand being higher.
By industry, auto and real estate were the most pessimistic. Construction and engineering was also among the weakest with only 45 in the index, the lowest score since 2012.
The metals and chemicals business were the most optimistic about the future.
As both sides dig in on the trade war it’s unclear what’s going to give, leaving business wondering what is likely to change. The Chinese have already made some concessions by lowering tariffs on US imported cars and bending on their formerly strict intellectual property agreements. But they are reluctant to fully capitulate yield to all of the White House’s demands.
Facing a president who seems determined to continue regardless of consequences, where his ends, no one quite yet knows.